Master thesis in Sustainable Development 277 Examensarbete i Hållbar utveckling

‘Base of the pyramid’ markets as incubators for innovations -

Implications for innovation processes of internationally operating companies

Miriam Höfling

DEPARTMENT OF EARTH SCIENCES

I N S T I T U T I O N E N F Ö R

G E O V E T E N S K A P E R

Master thesis in Sustainable Development 277

Examensarbete i Hållbar utveckling

‘Base of the pyramid’ markets as incubators

for innovations - Implications for innovation processes of

internationally operating companies

Miriam Höfling

Supervisor: Cecilia Mark-Herbert Evaluator: Karin Hakelius

Copyright © Miriam Höfling and the Department of Earth Sciences, Uppsala University

Published at Department of Earth Sciences, Uppsala University (www.geo.uu.se), Uppsala, 2015

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‘Base of the pyramid’ markets as incubators for innovations – Implications for innovation processes of internationally operating companies

Miriam Höfling

Höfling, M., 2015: ‘Base of the pyramid’ markets as incubators for innovations – Implications for innovation processes of internationally operating companies. Master thesis in Sustainable Development at Uppsala University, No. 277, 58 pp, 30 ECTS/hp.

Abstract This thesis identifies the enabling factors that are relevant for a company’s BoP innovation process. It aims at visualizing differences and challenges of BoP innovation processes in contrast to generic innovation processes. A literature review which was conducted first identified seven enabling factors for generic innovation processes: customer orientation, rigorous planning & early specification, pre-development activities, formalized project selection, functional competence & cross-functional teams, strong project leader and top management support. These theoretical findings provided the necessary framework for the qualitative, semi-structured interviews that were conducted with two companies, GE Healthcare and Godrej & Boyce, which both recently implemented a BoP project. The empirical results visualized the companies’ BoP innovation processes and suggested the following findings. First, the focus on customer orientation was strengthened as a company’s unfamiliarity with the local context strengthens the importance of exactly understanding the consumers’ needs. Second, rigorous planning & early specification was found not as important as in generic innovation processes due to the novelty of the endeavor and the necessary adjustments in the course of the project. Third, pre-development activities remain important. Fourth, formalized project selection is found to be one of the most influential factors for a BoP innovation project. Fifth, no difference in significance was found in functional competence & cross-functional team. However, the two dimensions of internationality of the team and proximity to respective decision makers were added. Sixth, the case studies showed that a strong project champion is decisive for a BoP project. Last, top management support was found to be one of the most important factors for a BoP innovation project as adjusting structural factors and strategic orientations is necessary for a BoP project to fully unfold. Furthermore, three additional factors (strategic (re-)orientation of a company, independent business unit and mindsets and work approach) were discussed.

Keywords: Base of the pyramid, Enabling factors, Innovations, Innovation Process, MNC, Sustainable Development

Höfling Miriam, Department of Earth Sciences, Uppsala University, Villavägen 16, SE- 752 36 Uppsala, Sweden

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‘Base of the pyramid’ markets as incubators for innovations – Implications for innovation processes of internationally operating companies

Höfling Miriam

Höfling, M., 2015: ‘Base of the pyramid’ markets as incubators for innovations – Implications for innovation processes of internationally innovating companies. Master thesis in Sustainable Development at Uppsala University, No. 277, 58 pp, 30 ECTS/hp. Summary As the human-caused climate change continues to gain strength and the effects become more and more visible, paradigms have shifted not only in environmental but also in social concerns. One central point thereby is the change of short-term mindsets towards a more sustainable, long-term thinking. This shift also affects the world of Development Corporation. As the charity and aid approach of the past experiences critiques, as it is said to solidify interdependences, the international community calls for a more innovation- and entrepreneurship-focused approach to alleviating poverty. This call focuses its attention on a growing responsibility and engagement of corporations in the development work as a business engagement suggests more long-term, sustainable activities. However, innovations for low-income markets need to be situation- and location-specific and solely removing some features of a high-end technology does not serve the purpose.

Hence, this paper discusses innovation processes of internationally operating companies. In particular, it looks at internal structural and organizational factors that influence a company’s innovation process. The special interest thereby is to understand the unique challenges and differences that accompany a company’s innovation process which is specifically targeted at low-income consumers in emerging markets. Therefore, a literature review identified the relevant theoretical background and a multiple case study of two internationally operating companies verified the theoretical findings for innovations targeting on low-income consumers. The results of this paper suggest that the significance of enabling factors for innovation processes which are targeted to low-income consumers slightly differs to a generic innovation process. Whereas in a generic innovation process a set of seven enabling factors are discussed to influence a company’s innovation process, the results indicate that these seven factors continue to be important while being different in their relative weights. It is found that some factors remain as important as in a generic innovation process whereas others are found to be more important in innovation processes which target low-income consumers. Furthermore, three additional factors were identified and added to the discussion. In conclusion, this paper contributes to the discussion of facilitating the gap between the corporate world and the world of Development Corporation to foster endeavors of innovating appropriate solutions for the so-far underserved consumers with the aim of meeting basic needs and alleviating poverty.

Keywords: Base of the pyramid, Enabling factors, Innovations, Innovation Process, MNC, Sustainable Development

Höfling Miriam, Department of Earth Sciences, Uppsala University, Villavägen 16, SE- 752 36 Uppsala, Sweden

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List of abbreviations

BoP Base of the pyramid

CSR Corporate Social Responsibility

ECG Electrocardiography

G & B Godrej & Boyce

GE General Electrics

GGO Global Growth Organization

IB Inclusive Business

ICFC In Country For Country

JFWTC John F. Welch Technology Center

MNCs Multi-National Corporations

OECD Organization for Economic Co-operation and Development

P&L Profit & Loss

R&D Research & Development

WBCSD World Business Council for Sustainable Development

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Table of Contents

1. Introduction ....................................................................................................................................... 1

1.1 Problem statement ........................................................................................................ 2

1.2 Aim and research questions .......................................................................................... 2

1.3 Outline .......................................................................................................................... 3

1.4 Ethical aspects .............................................................................................................. 4

2. Research design ............................................................................................................................... 5

2.1 Approach ...................................................................................................................... 5

2.2 Literature review ............................................................................................................ 5

2.3 Case study .................................................................................................................... 5

2.3.1 Unit of analysis ......................................................................................................... 6

2.3.2 Data collection .......................................................................................................... 7

2.3.3 Quality assurance ..................................................................................................... 7

2.4 Methods for data analyses ............................................................................................ 8

2.4.1 Content analysis ....................................................................................................... 8

2.4.2 Discourse analysis .................................................................................................... 8

2.5 Delimitations ................................................................................................................. 9

3. Academic views on ‘base of the pyramid’ and Inclusive Business ................................. 10

3.1 Understandings of the ‘base of the pyramid’ ................................................................ 10

3.1.1 Finding fortune........................................................................................................ 11

3.1.2 Creating fortune ...................................................................................................... 11

3.1.3 Sharing fortune ....................................................................................................... 12

3.1.4 Enabling fortune ..................................................................................................... 12

3.2 Inclusive Business ....................................................................................................... 13

4. Theoretical views on innovation theory .................................................................................... 14

4.1 Innovation Management .............................................................................................. 14

4.1.1 Definition of innovation ........................................................................................... 14

4.1.2 Types of innovation................................................................................................. 15

4.1.3 Innovation process ................................................................................................. 16

4.2 Characteristics and enabling factors of innovation processes ...................................... 17

4.2.1 Strategic orientation of an innovation ...................................................................... 18

4.2.2 Structural process characteristics ........................................................................... 20

4.2.3 Organizational process characteristics .................................................................... 21

4.2.4 Intermediary results from the literature review ......................................................... 24

5. Theoretical views on ‘base of the pyramid’ innovations ...................................................... 26

5.1. Definition of ‘base of the pyramid’ innovation ............................................................... 26

5.2. Key factors for ‘base of the pyramid’ innovations ......................................................... 26

5.2.1. Understanding customers’ needs ............................................................................ 26

5.2.2. Understanding innovation design characteristics ..................................................... 27

5.3. Empirical studies of BoP innovation processes ............................................................ 28

5.3.1. Novozymes – a Danish enzyme and micro-organisms producer ............................. 28

5.3.2. Nokia and ABB – Intrapreneurial bricolage .............................................................. 29

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6. Empirical cases of ‘base of the pyramid’ innovations .......................................................... 31

6.1. GE Healthcare and its “healthymagination” strategy .................................................... 31

6.1.1. The beginning: 2001-2005 ...................................................................................... 31

6.1.2. Enacting a BoP strategy: 2005-2009 ....................................................................... 32

6.1.3. Adoption of learning experiences: 2009-now ........................................................... 33

6.2. Godrej & Boyce’s ChotuKool refrigerator ..................................................................... 34

6.2.1. Getting started: 2007 .............................................................................................. 34

6.2.2. Realization of the idea: 2007-2009 .......................................................................... 35

6.2.3. Improvements and continuation of ChotuKool: 2009-now ........................................ 36

7. Analysis ............................................................................................................................................. 37

7.1 Strategic orientation of an innovation ........................................................................... 37

7.2 Structural process characteristics ................................................................................ 38

7.2.1 Rigorous planning & early specification ................................................................... 38

7.2.2 Pre-development activities ...................................................................................... 39

7.2.3 Formalized project selection ................................................................................... 39

7.3 Organizational process characteristics ........................................................................ 40

7.3.1 Functional competence & cross-functional teams ................................................... 40

7.3.2 Strong project leader .............................................................................................. 41

7.3.3 Top management support ....................................................................................... 41

8. Implications for innovation processes of internationally operating companies ............ 43

8.1 Major differences and challenges of ‘base of the pyramid’ innovation processes ......... 43

8.2 Additional factors of a ‘base of the pyramid’ innovation process ................................... 44

8.2.1 Strategic (re-)orientation of a company ................................................................... 44

8.2.2 Independent business unit ...................................................................................... 44

8.2.3 Mindsets and work approach .................................................................................. 45

8.3 Limitations and future research ................................................................................... 46

9. Conclusion ....................................................................................................................................... 47

Acknowledgements ............................................................................................................................. 49

References ............................................................................................................................................. 50

Appendix: Interview guideline ............................................................................................................. I

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List of figures

Figure 1: Outline of paper, including applied methods. ............................................................. 3 Figure 2: The world economic pyramid. .................................................................................. 10 Figure 3: Development of BoP definition. ............................................................................... 11 Figure 4: Overview of enabling factors as discussed in this paper. .......................................... 17

List of tables

Table 1: Details on interviewees and interviews ....................................................................... 6 Table 2: Overview of applied techniques to ensure validity and reliability .................................. 7 Table 3: Synoptical table of literature on different innovation types ........................................ 15 Table 4: Synoptical table of main theoretical findings .............................................................. 25 Table 5: Synoptical table of results from analysis .................................................................... 43

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1. Introduction

“ The leading global companies of 2020 will be those that provide goods and services and reach new customers in ways that

address the world’s major challenges – including poverty, climate change, resource depletion, globalization, and demographic

shifts” (WBCSD 2006; 4).

In times where the call for global sustainability is stronger than ever before and influences all spheres of human lives and activities, paradigms shift not only in environmental but also in social concerns. With a rise of public awareness concerning environmental and social issues likewise, especially the corporate world faces a profound pressure to renovate their value chains and satisfy the newly emerged societal demands and requirements. This does not only apply for bridle the use of resources but also for providing fair and safe working conditions for employees all along the value chain.

Especially with the shift in social aspects, the role of internationally operating companies changes on the global stage of economic activities. While the charity and aid approach has dominated development activities in the past, it currently faces limits in subservience and faces critique of its further creation of interdependences (Gerhardt 2010, www). The global call for sustainable development therefore shifted the emphasis towards an approach which is more focused on innovations and pro-poor entrepreneurship for reaching the global target of alleviating poverty (Halme et al. 2012; 743). Hence, the international community calls for a larger responsibility and engagement of companies in development and social issues.

Literature coined a new field of research that deals with the synergies between corporate activities and development issues. The so-called “base of the pyramid” (BoP)1 approach refers to the market potential that lies within the “3.7 billion people populating the lowest income strata in the world” (World Economic Forum 2009; 8). The so-far underserved population does not only lack the availability and accessibility of basic infrastructure and facilities, e.g. access to water, food and healthcare but also general consideration and attention on the global stage. By collaborating with each other a win-win-situation can be created where internationally operating companies start business activities on so-far unfamiliar markets through which the lives of billions of people can be significantly improved.

Engaging in business activities with BoP markets does not only offer great business opportunities for multi-national corporations (MNCs) (Prahalad & Hart 2002; 14) but also creates mutual learning experiences and knowledge-exchange. However, BoP markets are very unique in their structures, conditions and contexts and one solution can most likely not be transferred to another context (Prahalad & Hart 2002; 5). Additionally, culture and societal structures are extremely different from what MNCs are familiar with. Yet customers will not adopt products that are not appropriate for their specific context. Therefore, removing some features of high-tech products is not enough to meet the needs of the people living at the BoP (Prahalad 2012; 10; Chandra & Neelankavil 2008; 1018). “These distinct differences suggest that an undifferentiated approach to these markets will not work” (Prahalad 2012; 7). For that reason, companies that want to develop a suitable product, service or business model must take on a learning process in terms of assessing the appropriateness of their innovation processes in place. Understanding “the dynamics of these markets and the process therein” (Prahalad 2012; 6) is crucial to be successful and growing.

1 Literature also refers to the approach as “bottom of the pyramid” (cf. Prahalad & Hart 2002). This paper, however,

refers to the approach as “base of the pyramid”.

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Innovations do not only play a crucial role when appropriately addressing the BoP but have also been playing a crucial role in business growth and competitiveness ever since. Innovation is widely discussed in literature as the major driving force of progress and growth (cf. Ahlstrom 2010; Cooper & Kleinschmidt 1987; Andersson et al. 2012). “It is clear from experience of many multinational firms that taking the products, services, and business systems from the West will not work in the BoP market” (Prahalad 2011; 10). Successfully commercializing innovations is a struggle for every company; even on familiar and advanced markets (cf. Cooper & Kleinschmidt 1987; Christensen 2002). Imagining moving to unfamiliar and unexplored markets - it will increase the risk and uncertainty of this endeavor even more.

1.1 Problem statement The recent influential research stream that has addressed the BoP discourse has widely discussed and analyzed why it is profitable for a company to invest and engage in BoP markets (cf. Prahalad & Hart 2002; London & Hart 2004; Hart 2005). Additionally, several research papers have discussed the question of how BoP markets can act as a source for innovations (cf. Linna 2012; Krämer 2013). However, little research has been done on intra-organizational structures and processes in companies that lead to BoP innovations. Instead most studies focus on success stories as well as external factors that impact BoP engagement. “[…] If scholars and managers want to understand the mechanisms leading to inclusive business innovation, it is imperative to move beyond the success story rhetoric and to look more closely at the intra-organizational processes surrounding the innovation of inclusive business models” (Halme et al. 2012; 744).

Caused by an increase in dynamics of economic activities over the last decades, innovation management evoked increased awareness among scientists and practitioners (Verworn & Herstatt 2000; 1). Innovation process models are hereby a central aspect of innovation management doctrine (ibid.). As literature provides a vast amount of potential innovation process models, various authors (cf. Loch 200; 246; Verworn & Herstatt 2000; 1) focused their studies on developing a scientific and practical approved “best-practice” innovation process model which could serve as a blueprint for various purposes. However, both papers conclude that there is no standard best-practice model as innovation processes are strongly dependent on various influencing factors (Loch 2000; 255; Verworn & Herstatt 2000; 11). Hence, structuring an innovation process and leading it to success is demanding for managers by itself. Literature, therefore, suggests enabling factors that accompany a company’s innovation process and support its successful outcome (cf. Cooper & Kleinschmidt 1995; 389ff; Loch 2000; 247; Christensen 2002; 34ff).

That is particularly true for companies that innovate for unfamiliar and unknown markets such as the BoP markets. Since a well-known proverb among business scientists is “organization follows strategy”, it seems probable that companies that pursue a BoP strategy need to re-think their innovation processes and its intra-organizational structures. As the scientific field around BoP is still evolving and quite new, there are, so far, no studies that focus on innovation processes of corporations that engage in BoP markets. Hence, this paper2 aims at explaining how an innovation process for BoP innovations looks like. More concretely, it focuses on the internal structures that have an impact on a company’s BoP innovation process.

1.2 Aim and research questions This paper aims at identifying enabling factors which are relevant for a company’s ‘base of the pyramid’ innovation process.

2 For reading pleasure, a variety of words is used to refer to this paper: this paper, this (research) project, this

thesis, this study.

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Research question of particular interests is:

I. What are the major differences and challenges between a generic innovation process and a ‘base of the pyramid’ innovation process?

To accomplish the paper’s objective, two steps are undertaken:

(1) First, the study aims to review the literature to identify the enabling factors as state of the art.

(2) Second, the process for BoP innovations is illustrated against this theoretical backdrop by two multi-national corporations as illustrative case studies.

1.3 Outline The outline of this thesis is visualized in figure 1. The figure presents not only the thesis’ chronological order of chapters and applied methods but also visualizes its logical structure of the encountered findings and developed results.

Figure 1: Outline of paper, including applied methods.

Chapter 1 outlines the paper’s research focus by giving an introduction to the topic of innovations for BoP markets along with an explanation of the paper’s aim and the corresponding research questions. Chapter 2 outlines the paper’s approach by depicting the applied methods and their theoretical foundations Chapter 3 provides a background discussion of BoP and the “Inclusive Business” approach. In chapter 4, the theoretical framework is developed which serves as the basis for the analysis of the empirical data which will be presented in chapter 6. Before chapter 7 provides a detailed analysis of the empirical findings, chapter 5 provides some background information for the analysis. Chapter 8 discusses the empirical findings in relation to the theoretical framework. The results are summarized in chapter 9.

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1.4 Ethical aspects This paper is written from a multi-national corporation’s (MNC’s) perspective of BoP markets with the respective potential. However, the author acknowledges that this perspective can be exposed towards critiques since the underlying assumption here is profit- and economical motives that govern corporate management. This paper strives at contributing to bridging the gap between MNCs seeing BoP markets as markets where commercialized, last generation technologies can generate last profits before being replaced towards an understanding of the potential and opportunity BoP markets offer not only from a business perspective but also from a social, responsible perspective. Hence, how companies can successfully live up to their responsibility which stems from their global value chains and business activities while still being sustainable and successful to continue on that path.

Additionally, this paper will not make use of the term “developing countries” as the underlying notion with this specific expression is that becoming a “developed country” is what should be aspired. That, however, implies some special characteristics and values that are present in Western countries and does not acknowledge the diversity of cultures. It should not be the objective to align all countries in the world on one development path. Hence, this paper refrains from using the term “developing countries” but rather uses “emerging countries” or “low-income countries”.

It should also be stated that even though this paper is discussing enabling factors for a successful innovation process from a MNCs perspective, the endeavor of innovating for BoP markets should not solely profit the MNC but rather support local communities in improving their living situation. MNCs usually have the financial resources and technological knowledge for new and inventive solutions, whereas local experts have insights into local cultural contexts and needs. That is why sourcing locally should be strongly emphasized especially when talking about knowledge and insights into needs and cultural contexts, refraining from biopiracy and abusing local, traditional knowledge for the profit of MNCs. Hence, it is essential to not only investigate MNCs’ role in these partnerships but also to discuss the impact on internal structures when being exposed to a completely unfamiliar context. The paper strives at contributing to the discussion about how MNCs can engage in endeavors for BoP markets that is different from the traditionally applied imperialistic perspective of these markets.

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2. Research design This chapter argues for the choice and relevance of the applied methods for conducting this research project. This implies not only the methods that are used for data gathering but also for data analysis. This research project is based on a literature review and a multiple case study which was conducted by semi-structured interviews. The chapter also argues for the choice of the unit of analysis as well as the paper’s delimitations.

2.1 Approach Researchers, in general, can choose from a range of fixed, flexible and multi-strategy research methods (Robson 2011; 74). A flexible research design is commonly referred to as qualitative methods which are “[…] framed within the assumptions and characteristics (…) such as an evolving design, the presentation of multiple realities, the researcher as an instrument of data collection, and a focus on participants’ views” (Robson 2011; 132). Qualitative research methods are very common in social science and aim at a more in-depth understanding of human behavior. Qualitative methods are more focused on answering questions beginning with “why” and “how”. For the purpose of this research project, a flexible, inductive research design was chosen. This is due to the fact that the targeted contribution to the scientific knowledge is to be found in a deeper understanding of the behavior of a social entity, i.e. a company. Furthermore, the research is based on social science doctrines and understandings.

Being more flexible and soft in the approach of the research aim at hand thus demands a special skill set of the researchers in order to avoid biases (Robson 2011; 133f). When applying a flexible design, there are several approaches a researcher can use to empirically answer the research questions at hand. Robson (2011; 135) presents three widely used and adopted approaches: the case study, ethnographic studies and the grounded theory studies. For the purpose of this thesis a case study approach seems most suitable which is discussed in chapter 2.3 more in-depth. Prior, however, this chapter provides a short discussion of the applied method for the theoretical data gathering.

2.2 Literature review A literature review was a major part of this research project. It was conducted to develop the theoretical framework prior to the empirical data gathering. A literature review should be comprehensive, fully referenced, selective, relevant, a synthesis, balanced, critical as well as analytical (Steward 2009; 496). It aims at providing the readers with “[…] a clear understanding of the subject, the key authors and where to look if they want to find out more” (ibid.).

For the purpose of this paper, the literature review identified the relevant research items which set the theoretical ground of enabling factors for innovation processes. Hence, the literature review was part of a primary research project. The literature review gave a broad insight into the respective research field. Uppsala University Library was used as the main, collective database which provided access to various other databases, e.g. Business Source Premier, Ebsco Host, Science Direct, and journals, e.g. Journal of Product Innovation Management, Harvard Business Review, Long Range Planning, Management Science, Journal of Indian Business Research, among others. The major search terms used were: innovation process, BoP innovation process, innovation theory, innovation management, BoP innovations, enabling factors innovation process. The largest source of relevant articles was found in the Journal of Product Innovation Management.

2.3 Case study Eisenhardt (1989) suggests the application of a case study research method as “[…] a strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence” (Robson 2011; 136).

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For doing so, the case study research method offers a great variety of tools and data collection methods (Eisenhardt 1989; 534). Usually, literature divides empirical data collection methods in two categories: qualitative and quantitative (ibid.). Depending on the nature of the data that is to be gathered and the targeted question that is to be answered, the researcher has to choose which method would suit the research’s purpose most appropriate. It has to be noted that qualitative research can, however, be subjected to a researcher’s individual biases (Robson 2011; 133). Special attention has to be drawn towards the fact that data collection and data analysis often happen simultaneously in an empirical case study which may result in unexpected findings (Eisenhardt 1989; 538). Hence, a flexible research design allows adjusting the research questions and the theoretical framework in the course of the research which is necessary to ensure a close connection between theory and empirics. In order to ensure quality and reliability of the study results, field notes are to be taken to guarantee that no seemingly unimportant fact is being forgotten (Eisenhardt 1989; 539).

This paper aims at testing the theoretical understanding of innovation processes present in the scientific literature with the application and relevance for the specific context of BoP innovations. Hence, empirical, real-life investigations of companies that are already engaged and experienced with these processes is the favorable approach for authentically answer the issue at hand. Furthermore, the lack of scientific ground on this particular issue strengthens the application of a real world study as the preferential approach to close this scientific gap. Therefore, applying a multiple case study in contrast to a single case study is beneficial due to the fact that it allows comparison and, hence, a broader insight into the issue at hand. Furthermore, qualitative data was gathered through semi-structured interviews as the underlying research aim requires a more in-depth understanding of the process rather than the collection and evaluation of variables and key figures.

2.3.1 Unit of analysis In general, the unit of analysis for this paper is globally operating companies which are engaged on BoP markets with a unique and pioneering technological solution. In particular, this paper bases its analysis and discussion on the case study of General Electrics (GE) Healthcare, a division of an American conglomerate, and Godrej & Boyce (G&B), an India-based conglomerate (cf. table 1).

Table 1: Details on interviewees and interviews

Name Position Interview date Distribution of summary

Received confirmation

Aditi Ramdorai Researcher at University of Hamburg, Germany

May 29, 2015 June 19, 2015 June 28, 2015

Ankur Singh Senior Manager “Disruptive Innovation” at Godrej & Boyce

June 16, 2015 June 22, 2015 July 6, 2015

Both cases were chosen due to the pioneering technological solution directed to the Indian low-income market. GE Healthcare developed a low-cost, small-scale electrocardiogram and G&B a low-cost, small-scale refrigerator. However, for the purpose of empirical data gathering three more companies were contacted which, unfortunately, did not agree or were able to participate in this research project. In the end, GE Healthcare and G&B represent the favored case study pair because both companies are large conglomerates with a high diversity of divisions.

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2.3.2 Data collection For the purpose of this paper semi-structured interviews were used to collect the necessary empirical data. Regarding the field of research interviews, the literature commonly distinguishes between structured, semi-structured and unstructured interviews. Semi-structured interviews, in contrast to structured and unstructured interviews, are a more flexible yet still structured approach. Being guided by a systematic and consistent question guideline based on pre-identified themes, a semi-structured interview still allows elaboration and follow-up questions to fully understand an unit of analysis (Qu & Dumay 2011; 246).

The interviews with the knowledgeable persons from the targeted companies were based on an interview guideline that was developed out of the theoretical understanding which was gained through the literature review described above. The emerged topics and themes from the literature review were necessary to identify relevant and important questions for the interviews. The interviews took between 30-60 minutes and were conducted via telephone or skype.

2.3.3 Quality assurance Ensuring reliability and validity of a research project is crucial for building trust in the research findings. This applies especially for qualitative research designs as they are under constant critique in terms of quality of the study results (Riege 2003; 75). Therefore, Riege (2003) provides several techniques which can be applied for creating reliability and validity of a case study research project. The author distinguishes between construct validity, internal validity, external validity and reliability. For the purpose of this research project, the following techniques were applied (cf. table 2).

Table 2: Overview of applied techniques to ensure validity and reliability (based on Riege (2003; 82ff))

Examples of technique by Riege (2003)

Application of techniques in this project

Construct validity

Use multiple sources of evidence in the data collection phase

Combination of interview results and publicly available sources

Establishment of a chain of evidence, through e.g. transcripts and notes

Interviews were transcribed

Reviewing of data by key informants Transcripts validation through interviewees

Internal validity Cross-checking the results for internal coherence

The same framework is applied for all empirical cases

External validity

Definition of scope and boundaries of the research project

cf. chapter 2.4

Comparison of the evidence with the extant literature

The interview guideline as well as the analysis are based on the theoretical framework

Reliability

Give full account of theories and ideas

Cf. chapters 3-5

Assurance of congruence between research issue and design

Cf. chapter 2

Record observations Interviews were recorded and notes were taken

Use of structured or semi-structured case study protocol

Semi-structured interview guideline

Assurance of meaningful parallelism of findings across multiple case studies

Theoretical framework and interview guideline as basis for all interviews

Use peer-review/examination Proposal and half-time seminar with peers

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In order to construct validity, this research project uses multiple sources of evidence, e.g. interviews and other publicly available sources. All the interviews were transcribed and sent to the interviewee to confirm its correctness. In order to ensure internal validity, the theoretical framework was used both to develop the interview guideline as well as to analyze the findings. The scope of this research paper and its delimitations are described in chapter 2.5 to ensure external validity. This is supplemented by a close connection of theory and the empirics. Finally, reliability is ensured through the application of various techniques. This includes full account of all used theories; congruence of research issue and design; recordings of the interviews; application of a semi-structured interview guideline; assurance of parallelism of the case studies by using the theoretical framework as a basis as well as peer review.

2.4 Methods for data analyses After having gathered all necessary data through the above described methods, the analysis of the data has to secure certain scientific criteria that have a significant impact on the research’s reputation and acceptance, i.e. every research, especially empirical research, has to be replicable cet. par. by a different researcher. This is in particular important when qualitative empirical data is gathered and analyzed as the influence of the researcher and human interconnections are greater than with qualitative data. The methods chosen for this paper are content analysis and discourse analysis.

2.4.1 Content analysis When analyzing the data which are gathered through the interviews, the research method of content analysis will be used for analyses. “Content analysis is a research technique for making replicable and valid inferences from data to their context” (Krippendorff 1980; 21). Content analysis has gained importance over the last decades as “[…] a method of inquiry into symbolic meaning of messages” for verbal, symbolic or communicative data (Krippendorff 1980; 22). In general, content analysis distinguishes between qualitative and quantitative data as well as between an inductive and deductive approach (Elo & Kyngäs 2008; 109). As mentioned before, this paper gathered qualitative data. Hence, the choice to be made here is between an inductive and deductive approach when analyzing the gathered data, i.e. the conducted semi-structured interviews.

Elo & Kyngäs (2008; 109) distinguish the two approaches by their respective amount of present, former knowledge about the phenomenon to be studied. Inductive, on the one hand, is recommended if former knowledge is fragmented or not enough (Elo & Kyngäs 2008; 109). On the other hand, the deductive approach is used if a theory is to be tested which implies that former knowledge already exists (ibid.). The deductive process is based on prior knowledge of theories, models, mind maps or literature reviews (Elo & Kyngäs 2008; 111).

Hence, for the purpose of this research paper the deductive approach was applied as the literature review provided the required former knowledge for preceding the research project. Furthermore, the gained former knowledge does not only serve as the theoretical backdrop for the interview analyses but also as a fundament for developing the interview questions in the first place.

2.4.2 Discourse analysis Additionally, this paper also applied the method of discourse analysis for analyzing the collected data. “[…] Discourses as a particular way of talking about and understanding the world (or an aspect of the world)” (Phillips & Jorgensen 2002; 1) are, hence, an essential part of society that guide human interaction and exchange through language, power, social relations, beliefs and values, institutions and material practice (Harvey 1996; 78). As language is the most powerful tool for humans to communicate and exchange ideas, one limitation for this paper needs to be acknowledged: the conducted interviews took place via phone or skype which always poses the

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risk of a weak internet connection and, hence, the risk of not properly understanding the other. Furthermore, the interviews were conducted in English but none of the interviewees and neither the interviewer were native English speakers. This non-native setting may have produced language barriers and, hence, distorted information.

Discourse analysis, however, offers the possibility of comparing statements and reading between the lines, despite the limitation that the researcher needs to thoroughly understand the connection between the values mentioned above. Nevertheless, through discourse analysis new insights and knowledge can be generated due to its interdisciplinary knowledge creation.

2.5 Delimitations While acknowledging the wide range of innovation processes discussed in literature, this paper, however, will not provide an in-depth discussion of each innovation process model but rather focus on the discussion of internal, enabling factors that influence a company’s innovation process. This is due to the fact that literature does not identify a general “best-practice” model that can be applied for various purposes (cf. Loch 2000; 255; Verworn & Herstatt 2000; 11) but rather suggests that internal, enabling factors play a crucial role for a successful innovation process (cf. Cooper & Kleinschmidt 1995; 389ff; Loch 2000; 247; Christensen 2002; 34ff). Hence, the thesis does not study technical solutions for an innovation process but rather social conditions that accompany an innovation process.

Furthermore, this paper also acknowledges that innovations cannot be seen as stand-alone business endeavor that does not interact and is independent from several external factors such as governance, policies as well as customer adoption. Since this paper explicitly focuses on internal, enabling factors, a deeper analysis of the interconnectedness of innovation with its surrounding environment is beyond the scope of this paper.

Additionally, as this paper mainly focuses on the overall, enabling factors of an innovation process, tools and methods that are encountered to be relevant for a specific factor cannot be presented individually in this paper as this is beyond its scope. Therefore, this paper either provides a short definition and description of these tools and methods or makes use of a generically classification and discussion. It is left to the reader’s interest to further read into these concepts.

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3. Academic views on ‘base of the pyramid’ and Inclusive Business

This chapter provides some information on the two relevant fields of research, ‘base of the pyramid’ and Inclusive business which serve background knowledge for the following chapters. The review of the respective literature depicts the historical development of the understanding of the ‘base of the pyramid’ concept as well as a short introduction to the consequential evolved field of Inclusive Business.

3.1 Understandings of the ‘base of the pyramid’ The term ‘base of the pyramid’ (BoP) is an economic classification of the world’s population according to its annual per capita income. The so-called “world economic pyramid” (Prahalad & Hart 2002; 4) divides the world population into three tiers; the top, the middle and the base of the pyramid (cf. figure 2).

Figure 2: The world economic pyramid (Prahalad & Hart 2002; 4).

Strikingly, the largest number of people populates the last tier. According to the World Business Council for Sustainable Development (WBCSD) the base of the pyramid consists of 3.7 billion people who live on less than US$ 3,000 per person per year. “BoP markets are predominantly rural with the majority living in Africa, South Asia, Eastern Europe, Latin America and the Caribbean” (Subrahmanyan & Gomez-Arias 2008; 403). This definition and conception of BoP exclusively takes into account respective purchasing power parity (ppp)3 which means it is purely economic motivated. However, by solely focusing on an economic perspective shortcomings evoke in terms of profoundly understanding the untapped fortune that can be found in the “globally disconnected community” (Gupta & Khilji 2012; 8).

In order to create a holistic understanding, four views will be presented which represent the development of the BoP theory over the past years: finding fortune, creating fortune, sharing fortune and enabling fortune. Figure 3 visualizes and summarizes the development of the four BoP definitions.

3 Purchasing power parity (PPP): „a measurement of how much one unit of a currency would buy in different countries, calculated by comparing the price of one or more particular products in each country” (www, Cambridge dictionaries).

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3.1.1 Finding fortune The predominant, historically oldest but still currently used notion of BoP is strongly influenced by the leading authors Prahalad & Hart (2002) which were among the first to discuss the opportunities of business activities on BoP markets for MNCs, i.e. how MNCs can find fortune on BoP markets.

Figure 3: Development of BoP definition.

The authors’ primary argument that the BoP offers a huge market potential relies on an estimation of its purchasing power (Prahalad & Hart 2002; 4). With a multitrillion-dollar market potential, BoP markets are the most attractive future markets for businesses seeking “[…] growth, profits and incalculable contributions to humankind“ (Prahalad & Hart 2002; 1). However, this argument has evoked some controversial discussions about the actual market size of the BoP segment. While Prahalad & Hart (2002) suggest a multitrillion-dollar market, Karnani (2007) estimates only a 1.42 trillion US$ ppp, which is significantly lower than the original estimation by Prahalad & Hart. Karnani (2007) bases his calculations on data used by the World Resources Institute for the report “The next 4 billion” (2007; 26) marking the poverty line at 1,000 US$ ppp compared to the 3,000 US$ of the WBCSD. This significant difference in the market size estimation indicates that the argumentation for BoP activities which is solely based on the market size estimation is not profound enough. This suggests that there ought to be more advantages for MNCs for engaging on BoP markets. Hence, the definition provided by Prahalad & Hart comes short to recognize them.

3.1.2 Creating fortune The above described customer-oriented, unidirectional approach of BoP strategies experienced a “next level” development towards an eco-system-oriented, global value chain approach.

The next level BoP strategies were promoted first by Hart (2005) when arguing for “[…] seeing people at BoP as innovators, entrepreneurs, producers, researchers and market creators as well and not only as consumers to be tapped” (Gupta & Khilji 2013; 12). In fact, relying on tried and tested practices based on global capabilities without opening up processes and minds to realities and insights from local experts and communities can blind a company which may lead to failure (London & Hart 2004; 360). Yet, the private sector, including local economies, can have a significant impact on sustainable value creation for the BoP communities (Boer et al. 2004; 37).

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This, however, requires a re-conceptualizing of the company’s role in the supply and value chain – from being a focal player towards a facilitator of a value-creating network (ibid.). Adding a global dimension to a value chain, “[…] reflects a strong trend towards the dispersion of value chain activities across the world” (OECD 2013; 14). Hence, creating fortune does not solely consider the fortune for companies but takes also into account the benefit and fortune for the local communities.

3.1.3 Sharing fortune While the two definitions introduced above are widely applied, literature started calling for including considerations of developmental aspects into the so far business-focused BoP strategy.

When applying a conventional business strategy perspective, traditional value chains are seen to exploit low-income communities as a result of power and knowledge imbalances in well-established networks (Gupta & Khilji 2012; 13). Davidson (2009; 31) in fact argues that BoP engagement is very sensitive towards ethical concerns. Not only do BoP markets themselves entail several ethical concerns, i.e. appropriate products, fair pricing, advertising and promotion, distribution concerns, branding, packaging (Davidson 2009; 24ff) but also BoP engagement of MNCs, i.e. as a profit-driven enterprise can easily be perceived as exploiting and manipulating “[…] unsophisticated and poorly educated consumers” (Davidson 2009; 31). Hence, companies need to show their true will to be a good citizen by compromising on its economic outcome for its ethical and social responsibility. “In short, the firm must integrate all the principles of CSR along with its business planning for the BoP if it is to be truly successful” (ibid.). The recognition of these societal needs and their power to do harm was taken up by Porter & Kramer in 2011. The authors introduced the “shared value” concept for the business world which links a company’s competitiveness to its healthy interconnection with its surroundings (Porter & Kramer 2011; 65).

The extension to sharing fortune, hence, includes corporate social responsibility issues involving the BoP into the general BoP discussion. However, as here also the fortune of a company is paramount rather than development advantages for local communities, the perspective does not really expand the BoP concept to a more developmental perspective.

3.1.4 Enabling fortune A real extension to and inclusion of developmental aspects comes with taking on a natural law4 perspective. The “recognition of the unique, invisible resources and knowledge of the BoP would help protect our world’s abundant traditional knowledge and aid in mobilizing that and in combining that with modern scientific knowledge to address hitherto unaddressed major social and environmental problems” (Gupta & Khilji 2012; 10). This perspective, therefore, promotes a non-hierarchical, equal relationship with mutual learning process which can help to mutually tackle humankind’s future challenges as well as emancipation, democracy and autonomy (ibid.). Hence, the exchange and interaction of various actors lead to enabling fortune for people living in disconnected communities by private sector development and local social entrepreneurship. Yet this approach is also not free from the risk of exploitation and depreciation as biopiracy and unethical patents may risk the ownership of traditional, ancient local knowledge. Nevertheless, “[…] there exists a potential for enabling fortune in a way that provides dignity to BoP communities and connects alternative and diverse knowledge systems across multiple community groups and global value chains, to address otherwise unsolvable social and ecological challenges” (Gupta & Khilji 2012; 14). That is where the world’s opportunity lies for reaching the Sustainable Development Millennium Goals5.

4 Natural law is a philosophy of law.

5 For further information please see: https://sustainabledevelopment.un.org/index.php?menu=1300

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In summary it can be stated that, on the one hand, the BoP approach is far more significant and influential on a company’s business activities than the corporate philanthropy or CSR approach due to its income-gathering component and core business relation (Olsen & Boxenbaum 2009; 102). On the other hand, spanning the BoP approach across all four definition elements creates not only a large challenge but also great opportunity to support the fight against poverty and inequality.

3.2 Inclusive Business Building on the findings from the various scientific authors as presented above, the new opportunity was taken on from business and practitioners. The WBCSD, therefore, coined a new term in 2005: Inclusive Business (IB). IB “[…] refers to sustainable business solutions that go beyond philanthropy and expand access to goods, services, and livelihood opportunities for low-income communities in commercially viable ways” (WBCSD, 2015).

IB is a business approach to fighting poverty and development which seeks for synergies between a company’s core business and development goals to open up opportunities with mutual benefit. It is referred to as “inclusive” as it strives to include the so-far disregarded and disconnected low-income communities into business activities. The inclusion can be carried out in three ways. First, IB can open up opportunities to participate in the global value chain as employers, suppliers, distributors or retailers. Second, IB activities can satisfy needs of low-income communities by providing affordable products and services that meet the basic needs for food, water, housing, sanitation and healthcare. Third, IB can create unconventional partnerships for innovative business models which can facilitate access to energy, communication, financing and insurance for local business and entrepreneurs (WBCSD, 2015).

Prahalad & Hart (2002) describe four reasons why MNCs should engage on BoP markets. First, MNCs have the managerial and technological resources to create sustainable products and services, distribution channels and communication networks. Second, MNCs have global knowledge that enables to transfer knowledge from market to another one, yet customizing the products to local needs. Third, MNCs have substantial power and means to align and unite the wide range of actors in development and transfer the attempts into reality. Fourth, MNCs that perceive their BoP market engagement as a unique learning experience can enhance their future competitiveness by adopting a mindset of “being efficient”, i.e. environmentally-friendly and resource-efficient innovations rather than “bigger is better” (Prahalad & Hart 2002; 11f).

However, starting business activities for the world’s underserved population requires a strong re-imagination and –orientation of business models and practices (Prahalad & Hart 2002; 2). This may include creating disruptive innovations, adopting intra-organizational (infra-) structure, developing a new level of capital efficiency and new ways of financial success measurement (Prahalad & Hart 2002; 2). This is accompanied by entering in unconventional collaborations with governments, NGOs as well as other multiple stakeholders (Gupta & Khilji 2012; 12) to successfully penetrate commercial infrastructures for business activities, i.e. creating buying power, shaping aspirations, tailoring local solutions and improving access (Prahalad & Hart 2002; 8). However, the theory has resembled critics which state that due to the presented, glorified opportunities companies tapped into these markets too fast without really understanding their underlying contexts and needs (Boer et al. 2011; 33).

This thesis strives to contribute to this discourse by providing insights into a company’s internal structures and challenges that are accompanied by a BoP innovation process. The insights hopefully indicate the importance and extent of a BoP commitment and facilitate the implementation of appropriate structures and programs so that fortune is enabled throughout the entire value chain.

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4. Theoretical views on innovation theory This chapter develops the theoretical framework of this thesis. The current status of scientific research on enabling factor for innovation processes is presented which serves as the theoretical backdrop against which the empirical findings from the case studies are discussed. Prior, however, a short introduction into the field of innovation theory is presented in order to create a profound basis for the further discussions.

4.1 Innovation Management Innovation management generally describes all activities that are undertaken by a company in order to best use its creativity for new ideas, processes or products. Innovation activities are linked to high risk, cost as well as time which may cause almost inevitably an exceedance of a prior envisioned plan (Bers et al. 2014; 709). Hence, the management of the innovation process, in particular, is especially important as it systematizes and structures a complex and time-related set of successive steps. As companies commonly strive for efficiency enhancement and optimization, it is not surprising that there is a large endeavor of defining an efficient innovation process model which reduces cost, time and uncertainty.

4.1.1 Definition of innovation The definition of what exactly can be termed an innovation lacks a clear and common understanding in literature as well as among practitioners. Innovative activities do not only vary in the extent of change or from R&D endeavors until manufacturing but also among disciplines (Baregheh et al. 2009; 1324). “In daily conversation, terms like innovation, invention, creativity and science are often used interchangeably” (Ramadani & Gerguri 2011; 102).

Acknowledging the wide range of authors who have engaged in discussions about innovations, the historically presented definitions typically lack a broader discussion about innovation types and disciplinary contexts which limits their practicality for holistically describing the innovation term. Rogers (1995), a leading researcher in the innovation field, defines innovations as “ […] an idea, practice, or object that is perceived as new by an individual or other unit of adoption” (Rogers 1995; 11). Rogers strongly relates his definition, which here serves as an example for the entire spectrum of defintions, to individual experience. Hence, it does not matter if the innovation is new in an objective consideration but rather depends on an individual’s perception and reaction of the level of the idea’s novelty (ibid.). Yet it still leaves a rather big room for interpretation and definition by each individual. Furthermore, Rogers argues that innovation is often used synonymously with technology (Rogers 1995; 12) which limits the understanding and underlying notion of innovation to solely technology advancements.

Hence, there is a clear need for a holistic and all-comprising definition. Baregheh et al. (2009) take on the challenge of defining innovation in a way that the requirements of various disciplines are met as well as the different types and stages of an innovation are recognized. Applying a literature research, the authors successively review newer literature and cluster the encountered literary works according to their disciplines of origin. In the following, a word frequency analysis identified a textual as well as diagrammatical definition of innovation that is applicable transdisciplinary: “Innovation is the multi-stage process whereby organizations transform ideas into new/improved products, service or processes, in order to advance, compete and differentiate themselves successfully in their marketplace” (Baregheh et al. 2009; 1334).

As this definition provides the widest and encompassing definition, this thesis’ understanding of the term is based on this definition. It should be remembered throughout the entire paper that the understanding of innovations here is, however, not limited to products only but also encompasses services and business models.

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4.1.2 Types of innovation Building on the above introduced interdisciplinary and widely applicable definition of innovation, the scientific world generally recognizes three types of innovation which are summarized in table 3 with respective scientific studies and research. While historically research had been focused on defining a universalistic theory for innovations, a group of researchers argue that this may be inappropriate due to profound differences in an innovation’s nature (Dewar & Dutton 1986; 1422) and distinguish between radical and incremental innovations.

Table 3: Synoptical table of literature on different innovation types

“The major difference captured by the labels radical and incremental is the degree of novel technological process content embodied in the innovation and hence, the degree of new knowledge embedded in the innovation” (Dewar & Dutton 1986; 1423). Thus, radical innovation

Dimension Author Study Findings

Incr

emen

tal v

s. r

adic

al

Magnusson & Kristensson (2010)

A quasi-experimental study of user contribution to ideation processes with regards to their innovativeness (incremental/radical) in the mobile telecommunication service

It is found that involving professional developers, ordinary and consulting users leads to improvement and application/adoption, i.e. incremental innovations. On the contrary, involving creativity trained users leads to context translation and unprimed application, i.e. radical innovation. The study justifies the ordinary users to be a worthy resource for technology-based innovations in contrast to previous research which has been focused on the role of lead users.

Ettlie et al. (1984)

Testing the model of organization for radical and incremental innovations supported by data from the food processing industry

The study suggests that traditional strategy and structure supports incremental innovations whereas unique strategy and structure is needed to support radical innovations. It is also found that a centralized decision making, i.e. strong top management support, is necessary for radical innovations.

Rad

ical

Bers et al. (2011), (2014)

Extending the Stage-Gate-Model to radical innovations

The authors introduced the extended Stage-Gate-Model or Accelerated Radical Innovation Model (ARI) for the purpose of a radical innovation process. The ARI comprises of the steps from a general Stage-Gate-Model and adds three additional steps to account to the radicalness of an innovation.

Phene et al. (2006)

Case study of U.S. biotechnology industry for identifying how breakthrough innovations are created

The study suggests that the type of external knowledge influences the likelihood of breakthrough innovations. The authors found out that distant, national technological knowledge has a curvilinear impact on breakthrough innovations whereas proximate, international technological knowledge positively influences breakthrough innovations.

Schon (1963)

Study of resistance towards radical innovations and how to overcome these

The author suggests the product-champion approach to overcome the division between top management and employees to drive radical innovation processes. It is found that if an employee identifies with an idea as his/her own it is more likely that he/she will act as champion for this idea and nurture the project within the organization far beyond his/her job requirements.

Dis

rupt

ive

Christensen (1997)

Analysis of why well-managed companies fail despite being successful

The author coins the term of “disruptive innovation” as an explanation for company failures. It is the structure of a business model in place that hinders fully capitalizing innovations that do not fit these business models.

Ahlstrom (2010)

Disruptive innovations as a driver for growth

The author suggests that not only radical innovations are a source for a company’s growth but also disruptive innovations. This has also the advantage that disruptive innovations can help to raise the world’s living standards, especially in the BoP context.

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represents fundamental, revolutionary changes whereas incremental innovations consist of minor improvements or adjustments (Dewar & Dutton 1986; 1422). The groundbreaking and breakthrough nature of radical innovations implies high risk and uncertainty which often requires a balance between standard development processes and sufficient room for flexibility and improvisation during the innovation process (Nuñez 2012; 393). On the contrary, the development process of incremental innovations can draw back on structured and tried and tested processes (ibid.). However, these terms are only the two extreme ends of a continuum of innovation scales and are not fixed over time. The type of an innovation may change over time and, thus, move between the two extreme points (Dewar & Dutton 1986; 1423).

The notion that radical innovation is the indispensable requirement for a company’s long-term growth is questioned by a third innovation type. The concept of disruption or disruptive innovations is a third innovation concept that is widely discussed in literature. First introduced by Christensen (1997), he defined disruptive innovation as a “[…] phenomenon (…) (that, editor’s note) allows a larger population, people who historically didn’t have enough money to buy a product, to afford something like it” (Christensen 1997; 44). In this manner, humanity has experienced great disruptive innovations in the past, e.g. mobile phones (Yu & Hang 2009; 438) or the assembly line technique for mass production by Henry Ford (Christensen 1997; 44). Hence, disruptive innovations create new businesses and markets which will profit not only the company but also the users by supplying them with innovative solutions that were unaffordable in the past (Ahlstrom 2010; 19).

The great differences of studies as introduced above and nature of innovations indicates the need for structured and ordered innovation management with its central part being the structure of the innovation process.

4.1.3 Innovation process The innovation process can possibly be very unstructured and chaotic. Practitioners as well as scientists strive at formalizing the process’ steps in a way that management techniques can be applied and enhance the process’ effectiveness and efficiency (Cooper & Kleinschmidt 1993; 78). Verworn & Herstatt (2000) display various innovation process models that have attracted interest in literature as well as in practice. The paper discuses a number of 13 models, divided into two categories depending on their primary geographical appearance (English vs. German speaking area). The authors’ objective is to analyze whether there is one standard process model that can be applied for various purposes. The authors suggest that the diversity of process models is legitimate according to the various objectives, focus points and questions the models need to serve yet that there is no “best practice” model (Verworn & Herstatt 2000; 11).

One of the most applied and discussed innovation process models, however, is the Stage-Gate-Model which was first introduced by Robert E. Cooper in his book “New Products: The Key Factors in Success” (1990). The model breaks the process down into discrete steps, called stages, and ordering them successively. Each step or stage includes a number or mandatory activities that need to be fulfilled before moving on to the next stage or gate. Mandatory activities can include: “[…] detailed user-needs-and-wants study, a thorough technical appraisal, a preliminary manufacturing assessment, a competitive analysis, a paten search, the development of detailed product definition and preparation of financial projections” (Cooper & Kleinschmidt 1993; 78). These stages are followed by so-called gates which act as a “go/kill” decision and quality assurance point. Here all previous activities are critically assessed in terms of their anticipated outcome and success in order to decide whether or not to pursue with the project. The gates are usually pre-defined and include deliverables, criteria and outputs on which’s basis the project is evaluated (ibid.). As studied by the two authors, the application of a Stage-Gate process for innovation development has several advantages for companies. Managers that follow a Stage-

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Gate-Model report that teamwork had improved, less recycling and rework had to be done, the success rate of the new innovations had increased, the launch of the innovation was better, failures were detected earlier and a general shorter idea-to-launch-time was reached. In general, the application of a formalized Stage-Gate-Model has an overall high impact on the improvement of a new innovation development (Cooper & Kleinschmidt 1993; 80f).

Nevertheless, as mentioned above, there is no ‘best practice’ model for innovation process. Hence, a comprehensive presentation of several models is not included as it does not directly serve the purpose of this paper. Additionally, it should be stated that innovation endeavors, of course, cannot be seen as autonomous of external factors such as the competitive situation or market attractiveness (Cooper & Kleinschmidt 1993; 77). However, these factors are not as crucial for the endeavor’s success as internal structures and process (ibid.). Hence, these findings strengthen the objective of this paper, i.e. successfully innovating for BoP markets is strongly dependent on intra-organizational structures.

4.2 Characteristics and enabling factors of innovation processes Cooper & Kleinschmidt (1993), one of the most published and well-respected authors in the field, stated in one of their latest studies that the success of an innovation does not occur by chance but rather due to a company’s internal competence. Hence, literature and research is rich on factors that enhance a company’s probability of developing a successful new innovation. Innovation research can largely be divided into two streams: an economics-oriented which focuses on differences of innovation patterns in different countries and context and an organizations-oriented which focuses on a micro-level analysis of intra-organizational structures (Brown & Eisenhardt 1995; 343). This thesis focuses on the latter one which includes a presentation of the encountered factors in theory for a general innovation process. Acknowledging the wide variety of studies that focus on the determination of enabling or success factors for innovation processes, there is a remarkable consistency in the results, i.e. a few characteristics were identified by various papers despite varying data sets and methodologies. Based on the literature review accomplished for this paper and confirmed by the findings of Loch (2000; 247), there are seven factors that are recurring discussed among scientists (cf. figure 4).

Figure 4: Overview of enabling factors as discussed in this paper.

These seven factors, customer orientation, rigorous planning & early specification, pre-development activities, formalized project selection, functional competence & cross-functional cooperation, strong project leader and top management support, will be introduced here categorized in three overhead groups: strategic orientation, structural process characteristics and organizational process characteristics.

This paper also acknowledges that there are, of course, a lot more factors that influence an innovation’s outcome, especially external factors. However, external factors as market potential or proficiency of technological activities are taken as given for the purpose of this paper. The reasoning here is that if a company does not have technological proficiency or sees a clear market

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potential, it is more unlikely that this company will start an innovation process at the first place. Furthermore, some external factors are not controllable for a company such as market potential and competitiveness, marketing and technological synergies (Cooper & Kleinschmidt 1987; 182) but are still accounted for in strategic planning. However, a company’s response to these external factors can leverage their impact on the innovation process (Song et al. 1997; 44). For that reason these variables are not part of the following detailed discussions because the controllable variables have a much larger impact on an innovation process than the uncontrollable factors (Cooper & Kleinschmidt 1987; 182).

4.2.1 Strategic orientation of an innovation When deciding on a strategic orientation of an innovation, a company can generally choose between a focus on customers, competitors or technology (Gatignon & Xuereb 1997; 80). Whereas “customer orientation is the firm’s sufficient understanding of its target buyers in order to be able to create a superior value for them continuously”, a competitor orientation is the focus on identifying and responding to a competitor’s actions which may support an innovation’s commercial performance (Gatignon & Xuereb 1997; 78). Technology-oriented companies achieve a substantial technological knowledge and advantage to act proactively in the development of new innovations (ibid.). Being a technological leader, however, a company can potentially face severe efforts in educating customers about the uses and applications of the unknown innovation (Zirger & Maidique 19990; 881). As this increases the risk even more of a successful innovation launch and commercialization, a technology orientation is therefore not to be favored. Coming from a marketing perspective on innovation development, it seems rather intuitive that an innovation process enhances its success factor when it includes its customers’ and target group’s needs to provide a superior offer than competitors, i.e. being customer-oriented.

There are several studies that underline the importance of customer orientation for an innovation’s performance in comparison of a competitor or technology orientation. One of the first to encounter the importance of customer orientation was Rothwell et al. (1974). The authors revealed by a statistical study that “user needs must be precisely determined and met, and is important that these needs are monitored throughout the course of the innovation since they very rarely remain completely static” (Rothwell et al. 1974; 289). Additionally, it was found that a customer orientation positively influences an innovation’s commercial performance especially on uncertain markets (Gatignon & Xuereb 1997; 87). That means that as the market is highly uncertain and unknown for a company, it is essential to scan the market properly and to thoroughly understand the target customers’ needs and demands (ibid.).

A clear customer orientation is displayed or experienced when the innovation adds a clear value to the customer (Zirger & Maidique 1990; 880). In that regards, the concept of customer value tries to explain in business terms how an innovation’s superiority materializes. The concept of customer value is widely discussed in literature (cf. Flint 2002; Smith & Colgate 2007; Sanchez & Ricart 2010; Matzler et al. 2013; Paananen & Seppänen 2013). “Customer value is, broadly speaking, about understanding users today, seeking future opportunities for buyers, and intelligently creating innovations for payers” (Paananen & Seppänen 2013; 709). Paananen & Seppänen (2013) clearly present that the concept can be analyzed from various perspectives, e.g. from a psychological, behavioral, societal or business perspective (Paananen & Seppänen 2013; 710f). As this paper is written from a company’s perspective, the business lens is taken for the further discussion.

From a business perspective, customer value can be seen from two different angles. First, customer value is the perceived value by a customer (Smith & Colgate 2007; 8). A customer’s perception is individual, conditional and contextual and strongly influenced by a customer’s situation, living context and former experiences (ibid.). An innovation, in general, however, is

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perceived as superior if it involves characteristics as: unique features not available on competitive products, meets customer needs better than competitive products, higher product quality than competitive products, solves a problem that customers have, reduces the customer’s costs while being innovative (Cooper & Kleinschmidt 1993; 75). Second, customer value is the value of the customer for a company (Smith & Colgate 2007; 8). This is theoretically defined as the economic value proposition and is captured by the difference between an innovation’s price and a customer’s willingness to pay (Matzler et al. 2013; 31). The willingness to pay is “the maximum amount that an economic agent is willing to pay to acquire a specified good or service” (Oxford dictionary, 2015). A customer’s willingness to pay, therefore, reflects the perceived value a customer attributes to a certain innovation, i.e. value for the customer. As the first angle is not controllable and influenceable by a company, there is naturally a stronger emphasis on the second angle. A customer’s willingness to pay is not increased by offering a superior innovation or innovation quality but also by adapting the applied business model. However, it is a false assumption that a higher customer value resulting in a higher willingness to pay necessarily also leads to a higher profit for the company (Matzler et al. 2013; 31). A company might have to re-think the applied business model if one of the above introduced aspects increases but the others do not follow. A business model design is, however, strongly correlated with a company’s overall strategic orientation which closes the loop to the strategic orientation discussed above. The connection of strategy and business model is two folded. Either the strategy defines the business model or the business model defines the strategy (Sanchez & Ricart 2010; 139). That means that a business model innovation can either be a reaction towards a strategic reorientation or a trigger for a reorientation.

There are several tools that can be applied, mainly stemming from the marketing field. A detailed discussion about the broad spectrum of possible tools and methods is beyond the scope of this paper. Some basic tools for gathering basic data about consumer’s behavior include interviews, ethnographic and naturalistic research and group brainstorming exercises or idea competitions (cf. Krämer 2013). Building on these basic data tools as customer value changes, product analysis, technological breakthrough development and scanning as well as scenario analysis provide a deeper and profound insight (Flint 2002; 309ff). It depends on the efforts a company wants to spend and the effort that is required for a certain innovation which tool is most suitable. Combining the tools as far as it seems appropriate for the innovation process at hand, of course, offers the largest stand for future predictions (Flint 2002; 313).

***

In conclusion, it is vital for a company to understand market and customer needs in order to develop a superior product that is well adopted by the targeted costumer. Here the concept of the customer value can be applied which defines the added value of an innovation for the customer as well as for the company and influences the applied business model. However, it is a fuzzy concept which is under-researched and –defined in literature (Paananen & Seppänen 2013; 722). It is of particular difficulty to precisely define customer value since it is a mostly individually perceived value (ibid.). Additionally, customer value is under constant change due to changes in culture, environment and social situation (ibid.). It is therefore essential for a company to spend some efforts to capture current customer’s needs and demands to align the innovation to real life needs. Surprisingly, Cooper & Kleinschmidt (1993; 75) revealed in a study that the “[…] vital role of a unique, superior product (…) wasn’t obvious to everyone (…): much time and energy was devoted to projects that yielded “me too”, undifferentiated products […]”. It seems valid to conclude that literature strongly emphasizes a customer’s orientation when developing new innovations.

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4.2.2 Structural process characteristics After having defined the overall strategic orientation of an innovation and the company respectively, a deeper immersion into and definition of the pre-conditional structures of the process (i.e. rigorous planning and early specification, pre-development activities and formalized project selection) is the next step. These factors create the necessary structural framework for the innovation process in which the actual process steps take place.

The importance of rigorous planning and early specification of the project is intuitively comprehensible. Planning is vital for any project management and is defined as “[…] the function of selecting the enterprise objectives and establishing the policies, procedures, and programs necessary for achieving them. (…) Project planning must be systematic, flexible enough to handle unique activities, disciplined through reviews and controls, and capable of accepting multi-functional input” (Kerzner 2013; 506). The objective of the planning step is to identify all relevant milestones and individual and functional work activities and responsibilities in order to align and integrate all individual functional unit plans into a common plan of action (Kerzner 2013; 505ff).

Reasons for detailed planning are: “to eliminate or reduce uncertainty, to improve efficiency of the operation, to obtain a better understanding of the objectives, (and, editor’s note) to provide a basis for monitoring and controlling work” (Kerzner 2013; 508). Hence, it is not surprising that Cooper & Kleinschmidt (1987; 180) discovered that an early and clear definition of an innovation’s specifications and requirements is one of three key success factors that were identified by the authors. Referring to the Stage-Gate-Model, planning activities include the definition of the stages and the corresponding determinants that need to be met before passing the gate and moving to the next stage.

Whereas planning and early specification rather establish technical, structural conditions for the development process, pre-development activities refer to more content- and project-focused activities. Pre-development activities, sometimes also called pre-project activities, fuzzy front end or pre-phase 0 (Herstatt & Verworn 2000; 3), commonly comprise of two phases: idea generation and assessment as well as concept development and product planning (Herstatt & Verworn 2000; 4). Activities include initial screening, preliminary market assessment, preliminary technical appraisal, detailed market studies and a business/financial analysis (Cooper & Kleinschmidt 1987; 180). The tools that will help to formalize this step of the innovation process are versatile depending on the uncertainty of either the market or technology a company has to cope with (Herstatt & Verworn 2000; 6).

Cooper & Kleinschmidt (1993; 75) strongly emphasize that “the greatest differences between winners and losers were found in the quality of execution of pre-development activities […]”. Companies that made their homework thoroughly were significantly more successful than companies that lacked good pre-development activities (ibid.). Here, market studies are the most frequently applied activity by the examined case studies, yet only one fourth performed this preliminary, detailed pre-development activity at all (ibid.). According to Cooper & Kleinschmidt (1987; 180) proficiency of pre-development activities as well as an early specification along with a product advantages in terms of higher quality and reduced costs had the strongest correlation with being successful.

However, a company’s pipeline typically does not consist of only one project but rather of several projects which compete with each other for limited resources as companies usually do not have sufficient resources to realize every proposed project that meets some basic requirements (Archer & Ghasemzadeh 1999; 208). Hence, an assessment of the projects is necessary for a formalized project selection of the most promising ones. The selection is typically based on pre-defined criteria which refer to the company’s common goal of maintaining a balanced portfolio. The balance of a portfolio stems from a diversification of risk and value propositions. “Project

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portfolio selection is the periodic activity involved in selecting a portfolio, from available project proposals and projects currently underway, that meets the organization’s stated objectives in a desirable manner without exceeding available resources or violating other constraints” (ibid.). Relating to the Stage-Gate-Model, selection and assessment takes place at every gate a projects passes on its way to realization.

As there is a vast number of different methods and technique for assessing projects, the discussion of all of these techniques is far beyond the scope of this paper. This paper only presents a short, generic classification by Archer & Ghasemzadeh (1999; 208): strategic considerations, individual project evaluation and portfolio selection. Strategic considerations focus on external factors, e.g. market place, but also internal factors, e.g. strengths and weaknesses. This potentially very complex assessment, however, is necessary in terms of aligning a company’s overall objective and corporate resources with the portfolio (Archer & Ghasemzadeh 1999; 208). During the individual project evaluation phase each project is analyzed and assessed individually according to its contribution to the portfolio and the company’s objectives and goals. There are a number of indicators that help decision makers with the assessment, e.g. indicators of economic return such as return on invest6 or net present value7, cost-benefit-analysis8 as well as risk assessment9. In the portfolio selection phase, a number of projects are simultaneously compared in order to develop a ranking on which the selection decision will be based. Techniques for ranking are ad-hoc approaches, comparative approaches, scoring models, portfolio matrices and optimization models (Archer & Ghasemzadeh 1999; 209).

***

Before starting the actual development of an innovation, some structural factors facilitate the process and prevent an endeavor from failing. The necessity of a thorough planning and early specification helps to reduce uncertainty, align functional activities and develop a common understanding of the objective. This understanding is mostly achieved during the pre-development activities. Several studies revealed that companies who did their homework thoroughly before starting the innovation process were more likely to succeed. This strongly ties into the customer orientation and customer value concept as introduced in the previous subchapter. Furthermore, it is essential that projects are constantly assessed according to pre-defined criteria in order to secure that only the most profitable and promising projects bind corporate resources.

4.2.3 Organizational process characteristics The last category of enabling factors deals with the organizational process characteristics for collaboration and teamwork.

As Zirger & Maidique (1990; 879) note is managerial excellence, i.e. functional competence and cross-functional cooperation, critical to product success. Generalized, an innovation process includes steps of designing, manufacturing and marketing of an innovation. The relevant departments that need to take part during the process, hence, are the R&D, manufacturing and marketing department. Each department brings hereby its unique functional competence to the process and is responsible for a certain step of the innovation process, yet interaction and cross- 6 “The earning power of assets measured as the ratio of the net income (profit less depreciation) to the average

capital employed (or equity capital) in a company or project” (Business dictionary a, www). 7 “The difference between the present value of the future cash flow from an investment and the amount of

investment” (Business dictionary b, www). 8 “Process of quantifying costs and benefits of a decision, program, or project (over a certain period), and those of

its alternatives (within the same period), in order to have a single scale of comparison for unbiased evaluation”

(Business dictionary c, www). 9 “The identification, evaluation, and estimation of the levels of risks involved in a situation, their comparison

against benchmarks or standards, and determination of an acceptable level of risk” (Business dictionary d, www).

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functional collaboration is much more essential and crucial for the success of an innovation process as development is not linear and an overlapping between steps and competences will occur. The need for cross-functional cooperation or teamwork in innovation processes has been subject of discussion in various scientific papers (cf. Moenaert et al. 1994; Cooper & Kleinschmidt 1995; Song et al. 1997; McDonough 2000; Hoegl & Gemuenden 2001). The scientific landscape can be vastly divided into two research streams, according to McDonough (2000; 222f).

The first research stream analyses the relation between the employment of cross-functional teams and a company’s performance (cf. Ancona & Cladwell 1992; Webber & Donahue 2001). Ancona & Caldwell (1992; 326) studied the new product teams of five companies from technology-driven industries. The results show that the investigated companies did not experience an increase in performance with an increased functional diversity of their cross-functional teams. “From a managerial perspective these research findings suggest that simply changing the structure of teams (i.e. combining representatives of diverse function and tenure) will not improve performance” (Ancona & Caldwell 1992; 338). This suggestion was supported by a meta-analysis of empirical data found in the literature by Webber & Donahue (2001). The authors argue that there is too little understanding of the dynamics that accompany cross-functional teams as time, communication and a company’s culture or climate (Webber & Caldwell 1992; 157f). On the contrary, two research projects found that cross-functional teams have a positive impact on the speed of an innovation process (Zirger & Hartly 1996; Eisenhardt & Tabrizi 1995).

These scientific findings, however, seem to contradict reality in which more and more companies rely on cross-functional teams (McDonough 2000; 230) due to the expectation of being more creative and innovative. “The surprising consistency of perceptions across functions suggests that R&D, manufacturing, and marketing are far more interfunctionally integrated than is often noted” (Song et al. 1997; 44). However, the interface between a cross-functional team remains problematic (Gatignon & Xuereb 1997; 88) and to really become the main driver of the innovation process “[…] good internal communication and effective cross-functional linkages […]” (Song et al. 1997; 45) have to be established.

Hence, a second research stream emerged which suggests that the question to be asked is not whether or not to employ cross-functional teams but rather which characteristics of cross-functional teams influence a process’ success. McDonough (2000; 223ff) identifies three focus areas with respective characteristics. First, stage-setting elements reflect management actions that initiated and directed the development efforts (McDonough 2000; 224). Among the four characteristics that are discussed here, goals, empowerment, climate and human resources, establishing project goals is found to be most frequently cited in over seven hundred email questionnaires (McDonough 2000; 227ff). Goals provide a common frame which promotes and aligns cross-functional cooperation as well as sets boundaries and a direction of the process (McDonough 2000; 223). Second, enablers such as team leadership, senior management and champions are relevant factors for cross-functional collaboration. Here, team leadership was outstanding. The important activities include the moderation between the other two focus areas, enabling freedom to explore and motivate as well as bridging the gap between the senior management and the project team (McDonough 2000; 225). Third, behavior including cooperation, commitment, ownership and respect, the cooperation is the characteristic mostly cited (McDonough 2000; 231). Cooperation can be seen as the combining factor between all three focus areas. Whereas clear “[…] goals stimulate cooperation by focusing individual efforts on specific, common goals” (McDonough 2000; 226), team leaders facilitate relationships and communication among the project team members (ibid.). Interestingly to note here that the three decisive aspects, goals, team leadership and cooperation, cover all three focus areas. This was not previously designed by the researcher but illustrates the interconnectedness of all three focus areas.

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Special attention should be drawn on the factor of team leadership. “Even though the cross-functional team is the heart of efficient product development, the project leader is the pivotal figure in the development process. (…) The project leader is the linking pin or bridge between the project team and senior management” (Brown & Eisenhardt 1995; 369). McDonough (2000; 225) found that leaders are a key to overcome problems and provide support to the development team and therefore act as an enabler for a successful innovation process. However, team leaders usually do not penetrate the process directly but rather guide the process and team members in subtle and implicit ways (ibid.).

Hereby the team leaders take on different roles; the role of a communicator, a climate-setter, a planner and an interface (Barczak & Wilemon 1989; 262). “[…] the effective manager of an innovation-oriented work team is usually a social architect who understands the interaction of organizational behavioral variables and can foster a climate of active participation and minimal dysfunctional conflict” (Thamhain 1990; 14). There are two characteristics of a strong project leader that foster an efficient and successful process. The first is the power of a project leader to making decisions, having organization-wide authority and acting on a high hierarchical level to successfully gather resources, budgets and personnel (Brown & Eisenhardt 1995; 370). The second characteristic is vision. “A vision involves the cognitive ability to mesh a variety of factors together to create an effective, holistic view and to communicate it to others” (ibid.).

This strongly suggests creating a kind of ownership and championship for an innovation endeavor. The concept of championship was first introduced by Schon (1963) and describes persons that “[…] identify with the idea as their own, and with its promotion as a cause, to a degree that goes far beyond the requirements of their job” (Schon 1963; 84). However, since the introduction of the term, there have been several research papers that investigate the correlation between championship and its influence on an innovation process but suggest no clear positive influence of championship on innovation processes (cf. Markham et al. 1991; Markham & Griffin 1998). Yet, an influence primarily by reducing the time of an innovation process was found (Markham & Griffin 1998; 447). Hence, research does not support the conventional wisdom of the advantages of a champion in innovation processes. Furthermore, the implementation of a champion in practice is difficult since it may spread the notion that the provided space for free and creative work of an innovation team by the top management does not work (Schon 1963; 85). Cooper & Kleinschmidt (1995; 377) argue that an internal culture of intrapreneurship is positive for a successful innovation process. Employees should have the possibility and encouragement to submit new ideas which will be supported by some free and flexible time, so-called skunk works10, to develop own ideas (ibid.). This intra-organizational freedom, however, is strongly dependent on the top management support and its willingness to bend fixed standards.

Even though Cooper & Kleinschmidt (1987; 181) suggest that top management support is a rather weak contribution factor to an innovation process, it still has a positive effect. It is found to be essential that senior management provides the appropriate environment for innovation, creativity and efficiency (Thamhain 1990; 16) and commits to taking risks, provides sufficient funds and resources, clear definition of role and importance of innovation for the company, accessibility of a contact person in the senior management in case of difficulties as well as technical literacy among senior managers (Brown & Eisenhardt 1995; 371; Cooper & Kleinschmidt 1995; 378). However, there is not a clear scientific field that discusses the role of top management support and commitment in the innovation process. “Senior management can help develop a “priority image” and communicate the basic project parameters and management guidelines. Management must convey why it wants this innovation and what it will be used for” (Thamhain 1990; 14). For this

10

“Product development program established outside the normal process and/or premises to expedite it or keep it

a secret” (Business dictionary e, www).

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reason, the concept of mission statement will be discussed instead as it reflects the company’s values, mission and prospect for the future.

One of the top management’s tools to align corporate behavior and business activities is by defining a corporate mission statement. “Mission is something that is linked to strategy but at a higher level” (Campbell & Yeung 1991; 10). A company’s mission statement includes elements as purpose, values, behavior standards and strategy (Campbell & Yeung 1991; 13). Special attention is to be drawn on a company’s corporate values. “Values are beliefs and moral principles that lie behind a company’s culture. Values give meaning to the norms and behavior standards in the company and act as the ‘right brain’ of the organization” (Campbell & Yeung 1991; 15f). Hence, corporate values create a meaning in a company and focus and guide behavior just as strong as a strategy (Campbell & Yeung 1991; 16). Especially, if employees’ create a sense of mission which is embedded in a personal value system, the commitment and therefore the strength of the corporate mission will increase (Campbell & Yeung 1991; 18).

The scientific landscape around mission statements of companies is not yet large. There are only a few studies which focus on the relation between a mission statement and the financial performance of a company but were not able to identify profound linkages between the two (Bart et al. 2001; 19; Desmidt et al. 2011; 478; William et al. 2014; 448). However, among practitioners it is acknowledged that “[…] knowing why you want to do something brings clarity of purpose and passion to your efforts. It helps influence and guide what you do next as well as how you do it” (Bart et al. 2001; 28). Benefits include: providing a sense of the organization’s direction and purpose, focusing the allocation of organizational resources, communicating effectively with important internal and external stakeholders as well as describing the values of the organization that will guide and inspire organizational members (Desmidt et al. 2011; 469).

***

In conclusion, organizational process characteristics have a large influence on a company’s ability to innovate successfully. It can be stated that cross-functional teams impact innovation processes. However, a generalized statement that cross-functional teams will lead to increased performance or faster innovation process cannot be supported by the findings of the literature. The advantage of a cross-functional team rather lies in its characteristics and implementation in terms of clear goals, team leadership and cooperation. In fact, “[…] cross-functional teamworking is not universally good, and implemented wrongly can actually have a negative impact on innovation output” (Love & Roper 2009; 200). Furthermore, top management support is essential not only for resource allocation but also and in particular for risky endeavors by committing to taking the risks. Aligning a project with the corporate mission statement and values can not only facilitate top management support but also create a sense of ownership among the responsible employees which in turn will drive the project forward. Hence, strong leadership and the sense of championship will nurture the project and cuts its duration time.

4.2.4 Intermediary results from the literature review Concluding the theoretical discussion, it can be stated that there are several factors that influence an innovation process: customer orientation, planning & early specification, pre-development activities, project selection, functional competence & cross- functional teams, strong project leader and top management support. Table 4 visualizes the factors as discussed in this chapter.

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Table 4: Synoptical table of main theoretical findings

Main findings Strategic orientation of an innovation Customer orientation Customer orientation is to be favored for developing a successful innovation. The application

of the customer value concept hereby offers a framework for developing a profound understanding of targeted customers. Studies revealed that product superiority is one of three main drivers for a successful innovation.

Structural process characteristics Rigorous planning & early specification

A profound, proactive planning of the entire process is beneficial for developing a successful innovation. Hereby it is vital to define as early as possible some cornerstones of the process as well as for the innovation itself. It is one of the three main drivers for a successful innovation encountered in literature.

Pre-development activities

The execution of pre-development activities is one of the three main drivers for a successful innovation. Studies found out that the quality and scope of pre-development activities is the major difference between successful and unsuccessful innovation endeavors.

Project selection In order to ensure that limited resources are not allocated to projects that are doomed to failure, a profound selection of promising projects is necessary on the basis of pre-defined indicators.

Organizational process characteristics Functional competence & cross-functional teams

In the process of developing an innovation functional competence, i.e. each function contributes its unique knowledge and skills to the mutual endeavor, is as important as working cross-functionally. It is, however, essential to carefully staff the cross-functional team as a wrongly equipped team has a negative impact on an innovation success.

Strong project leader (Championship)

Especially if an innovation process is risky and unsecure, a strong project leader is essential to nurture and drive the project forward. Even though literature does not encounter a correlation between championship and an innovation’s success, the project team should be encouraged to work entrepreneurial in order to create ownership.

Top management support (mission statement / corporate values)

As innovation processes are very cost-, time- and resource-intensive, having top management support simplifies the endeavor for the project team. With a strategic prioritization from the top management, resource-allocation and risk-taking is easier. Here a company’s mission statement or corporate values set the ground for top management support and strategic priority.

Despite the fact that there are various companies and various innovation processes the most influential factors are product advantage, i.e. customer orientation and customer value respectively, pre-development activities and early specification according to Cooper & Kleinschmidt (1987; 180). Smaller but still significant influences on an innovation process have selection criteria, functional competence & cross-functional teams, strong leadership and top management support.

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5. Theoretical views on ‘base of the pyramid’ innovations

This chapter provides some information on ‘base of the pyramid’ innovations which serve as background knowledge for the empirical data analysis. The definition and discussion of key factors of ‘base of the pyramid’ innovations is followed by two empirical case studies found in literature. The chapter strives at developing a profound theoretical understanding of BoP innovations which will help to follow the analysis in chapter 7 and the subsequent discussions in chapter 8.

5.1. Definition of ‘base of the pyramid’ innovation When discussing innovation for BoP markets, literature applies several terms for discussing the same issue: inclusive innovation, BoP innovation or innovation for inclusive business, among others. Despite different labels, these terms refer to the same phenomenon and can, mostly, be used interchangeably. George et al. (2012; 663) define inclusive innovation as “[…] the development and implementation of new ideas which aspire to create opportunities that enhance social and economic wellbeing for disenfranchised members of society”. While having in common the transformation of an idea into something new and tangible, i.e. the novelty of the outcome, this definition differs in two aspects to the above introduced definition of innovation in a general context (cf. chapter 4.1). First, the definition for BoP markets does not specify the type and form of the innovation, e.g. products, services or processes (Baregheh et al. 2009; 1334) but expands also to institutions, business models and supply chains (George et al. 2012; 663). “Innovative solutions are not only in technology, products or services, but it is also necessary to rethink the whole business model” (Linna 2012; 114). Second, the understanding of innovation in general looks through a lens of competitive advantage compared to a lens of social engagement and responsibility taken by BoP innovations. Hence, the definition for BoP innovations applies a “[…] focus on opportunities for social and economic wellbeing (…) (and, editor’s note) on the understanding that certain sections of society have been barred structurally from achieving wellbeing” (George et al. 2012; 663). Thus, in the following, this paper will discuss some unique characteristics and aspects that are related to BoP innovations.

5.2. Key factors for ‘base of the pyramid’ innovations As discussed above, having a clear customer orientation and knowledge about the needs is vital for an innovation process. “Innovations must start with a deep immersion into consumers’ lives to get unique insights” (Prahalad 2011; 10). That is especially true for endeavors that focus on BoP markets. As these markets are commonly undeserved which means that companies cannot rely on experience or profound knowledge, it is of high importance to thoroughly assess the local context, needs and the targeted customers. This deep immersion and understanding can be achieved by recognizing the importance of the following factors: understanding customers’ needs and innovation design characteristics.

5.2.1. Understanding customers’ needs “In BoP markets, it is not uncommon for even fundamental, survivalist life needs of individuals to remain unfulfilled” (Viswanathan & Sridharan 2012; 60). According to Maslow’s hierarchy of needs, physiological or basic needs represent the fundament for the pursuit of self-actualization and are the ones which’s satisfaction will be valued the most (Maslow 1943; 372). Since low-income consumers constantly have to take make-or-buy decisions with regards to saving cash for unexpected incidents, it makes them rather ‘prosumers’ than pure ‘consumers’. “[…] i.e. producing many of the items one consumes […]” (Viswanathan & Sridharan 2012; 60). Hence, BoP consumers’ choices and aspirational needs can potentially significantly vary from consumers living in affluent markets.

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This suggests that BoP consumer value the importance of certain needs differently compared to saturated markets. The authors Subrahmanyan & Gomez-Arias (2008), therefore, investigated consumption patterns as well as consumption motivation of BoP consumers. The authors identified four main categories in which BoP consumption occurs. The first category is basic needs, e.g. food and nutrition, energy, housing, water and sanitation, which are purely motivated by survivability. In this category, the area with the highest share of spending can be found, namely food with almost 60 percent share of income (Hammonds et al. 2007; 28). The second category is essential services, e.g. transportation, health services, financial/banking/insurance services, education, which mainly provide safety and security. Consumption areas in the third category provide connection to the rest of the world, e.g. information technology, labor market, which enables social interaction and keeping up with society. Finer things, e.g. personal care and hygiene, clothing, household durables, culture/sports/spirituality, as the last category allows building self-esteem and satisfying self-actualization needs (Subrahmanyan & Gomez-Arias 2008; 404f). Even though the highest share of income is still used for satisfying physiological needs, “[…] the highest increase in the last decade has been in the category of communications and technology, a higher social need” (Subrahmanyan & Gomez-Arias 2008; 408). That suggests that BoP consumers supersede physiological needs with higher needs due to social belonging and recognition as well as family needs. Hence, the “[…] BoP might respond to a hierarchy of needs different from Maslow’s” (ibid.).

Additionally, BoP consumers can, potentially, be very creative and inventive when it comes to innovation use. Due to affordability constraints, innovations are often used for multiple purposes rather than just the one purpose for which it was designed for (Viswanathan & Sridharan 2012; 62). Hence, identifying these critical physiological, basic needs is a key success factor for BoP innovations (Viswanathan & Sridharan 2012; 60).

5.2.2. Understanding innovation design characteristics When designing an innovation, unique attributes and features are defined for the specific target market. The 4 P’s (promotion, price, place and product) commonly serve as a reference framework for product design. Referring to BoP markets, however, a modified concept gained recognition and acceptance. The so-called 4 A’s are a set of attributes which are used to characterize BoP innovations and include: awareness, acceptance, affordability and availability (Prahalad 2011; 7). However, the 4A’s, in fact, are only a slightly different emphasize on special innovation characteristics as each A can be related to one P.

First, as consumers on BoP markets are largely without access to conventional (media) advertisement (Anderson & Billou 2007; 15), it is a company’s responsibility and challenge to distribute information even in media neglected rural areas (Prahalad 2011; 7) which requires a strong re-thinking of tried and tested marketing strategies and approaches (Anderson & Billou 2007; 15). Awareness can be related to promotion (Subrahmanyan & Gomez-Arias 2008; 410).

Second, “acceptance is the extent to which consumers and others in the value chain are willing to consume, distribute or sell a product or service” (Anderson & Billou 2007; 15). As a company can more or less influence the other three A’s, planning a strategy to create acceptance among the new customers is difficult to foresee. Here, it is essential to be accustomed with local, cultural and socioeconomic aspects (ibid.). Acceptance can be related to product and the challenge to design appropriate and relevant innovations (Subrahmanyan & Gomez-Arias 2008; 409).

Third, “affordability is the degree to which a firm’s goods or services are affordable to BoP consumers” (Anderson & Billou 2007; 15). Reducing costs on saturated markets usually range in only marginal changes. On BoP markets in order to offer an affordable product, costs have to be cut largely by up to 1/50 of the original price (Prahalad 2011; 7). Reducing costs by removing some technical features or introducing an ‘old’ generation version of an innovation will, however,

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not be appropriate for thoroughly satisfy the special needs of BoP consumers. Affordability can be related to price as the price plays a crucial role in purchasing decisions due to income situations (Subrahmayan & Gomez-Arias 2008; 410).

Fourth, customers at the BoP do not only demand a unique product that satisfies their special needs but also an uninterrupted and steady supply. “Availability is the extent to which customers are able to readily acquire and use a product or service” (Anderson & Billou 2007; 15). Here, infrastructural circumstances largely impact the entire business model (Prahalad 2011; 7). A clinic providing affordable healthcare for local communities, for example, cannot rely on the common notion that patients will be able to come into the clinic to see a doctor in case of sickness but rather the doctors have to offer their medical services in even the remotest community. Availability can be related to place (Subrahmanyan & Gomez-Arias 2008; 410).

***

In conclusion, a profound understanding of the market and its consumers is essential for all new business ventures but especially for BoP markets due to unfamiliarity and insecurity of the market place. It is therefore advisable for companies that aim at penetrating a BoP market to thoroughly gain a profound understanding of the customers and their needs prior to their innovation endeavors. The difficulty lays in a customer’s perception of a product’s superiority and with it a product’s appropriateness for a special need. This potentially differs significantly between a customer living in saturated markets and a customer in unsaturated markets. It is, therefore, commonly agreed that BoP innovations have very unique features in order to be accepted and consumed.

5.3. Empirical studies of BoP innovation processes During the literature review two empirical case studies were found that discuss the issue of innovation processes for BoP markets in multi-national companies. The cases and findings are presented in the following subchapters.

5.3.1. Novozymes – a Danish enzyme and micro-organisms producer A case study of a Danish company for enzymes and micro-organisms, Novozymes, conducted by Olsen & Boxenbaum (2009) revealed very interesting insights into a company’s intra-organizational barriers and obstacles when fostering a BoP project. The company was already engaged in sustainability issues with corresponding reporting at the time when the top management decided to shift the focus of the corporate sustainability strategy from a focus on policies and targets towards seeing sustainability-driven business opportunities (Olsen & Boxenbaum 2009; 104). As a result, two new sustainability initiatives were introduced by high-level management, a Life-Cycle-Assessment11 (LCA) project and a BoP project. However, only the LCA project was adopted by the staff and turned into practice.

The case study revealed that a first attempt to implement the BoP strategy within the company failed to succeed. The company employed, at first, a de-centralized approach, i.e. the responsibility for the realization of the project lay in respective strategy groups. It then shifted to a more centralized approach, i.e. the corporate sustainability function took over the responsibility for the project. Reasons for the failing of the de-centralized approach are multiple and are discussed in the following.

As part of the de-centralized approach, the corporate sustainability function transferred the BoP project idea to the cross-functional groups and the associated operations actors. Hence, the cross-

11

“Although many definitions exit, LCA essentially comprises a systematic evaluation of environmental impacts

arising from the provision of a product or service” (Horne et al. 2009; 2).

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functional groups were asked to allocate resources, develop the project as well as create a marketing strategy with the aim of including a BoP/sustainability strategy into normal business activities (Olsen & Boxenbaum 2009; 106f). The authors encountered four obstacles within the organization that hindered the project’s implementation.

First, the mindset of the employees that were tasked with the project had a somewhat cumbersome mindset. The BoP project was seen with a trade-off mindset which perceived sustainability projects as additional cost that only reduces a company’s financial performance (Olsen & Boxenbaum 2009; 109ff). Second, the unfamiliar nature of the BoP project demanded a fundamental re-thinking of work practices and routines of the staff. As the staff did not really recognize the project greater contribution to Novozymes’ social and environmental aspirations in developing countries, there was no willingness to change well-tried processes (Olsen & Boxenbaum 2009; 111ff). Third, the rather short-term, financially-oriented evaluation criteria which were in place to assess projects as well as to compensate the staff conflicted with the complexity, resource-intense, time-consuming, revenue uncertainty nature of the BoP project. Hence, the project failed the assessments and was not turned into practice (Olsen & Boxenbaum 2009; 113ff). Last, the cross-functional groups and the corporate sustainability function had discrepant mandates in this endeavor. On the one hand, the corporate sustainability function diffused ideas from the corporate level to the operational level. On the other hand, the cross-functional groups tried to protect their functional operational efficiency which is based on short-term key financial indices referring to the company’s performance would be declined when introducing the BoP project (Olsen & Boxenbaum 2009; 115ff).

Due to all the above mentioned obstacles and constraints, the company shifted its approach a year later to a more centralized approach. Here, the company undertook several activities which aimed at advocating the project and transitioning it again to the cross-functional teams (Olsen & Boxenbaum 2009; 116). First, by re-locating the project responsibility to the corporate sustainability function, it was attempted to make the project more tangible and concrete. The building up of expertise and evidence for a win-win situation was supposed to facilitate a latter transition to the cross-functional teams. The authors noted that the definition of the product area was an important step as the project became more specific and tangible (Olsen & Boxenbaum 2009; 117f). Second, organizational process characteristics were a bar to the project’s implementation. Even though the top management was supportive and committed from the very beginning of the project, it simplified the endeavor in some ways and made it more pressing in other ways. As the BoP project was rather seen as a strategic intention than a formal project, clear resource allocation was missing and in order to further pursue with the project, the management had to be convinced of the win-win situation (ibid.). That, however, required that the staff had to strongly believe in the project themselves and continue working until they reached a status where they were able to convince the top management. As “[…] a centralized approach requires heavy investments from top managements and external investment funds since resources are not allocated to the project from areas such as R&D production, sales, and marketing”, the centralized approach can only be a temporary solution with a long-term prospect of a transition strategy (Olsen & Boxenbaum 2009; 119).

5.3.2. Nokia and ABB – Intrapreneurial bricolage The authors Halme et al. (2012; 748) researched organizational aspects of inclusive innovation processes in large companies with a particular focus on how intrapreneurship and bricolage unfolds in innovation processes for low-income markets. The authors chose Nokia, a telecommunication company, and ABB, an energy company, for the purpose of this research project due to pre-defined criteria, e.g. business model had to target low-income markets and the business field in which the company operated had to be relevant for IB (ibid.).

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The analysis first revealed some differences in the innovation processes and the accompanied organizational context within the two companies. The first differences stems from the strategic priority that was defined for the BoP project. Whereas Nokia introduced an expansion strategy into emerging markets in the mid-1990s, the initial idea at ABB was submitted by a middle manager (Halme et al. 2012; 754). This difference had significant influence on the projects’ access to resources. The second difference can be found in the innovator pairs’ characteristics. The two responsible employees at Nokia were both internal staff, working with the technology development and local operations as well as with the business model development. Hence, one employee was located very close to the headquarters (HQ) which simplified cross-organizational work, resource access and frequent communication (Halme et al. 2012; 755). Thus, Nokia was able to create ownership within the organization and dedication of resources prior to the actual development process and in-field work (Halme et al. 2012; 757). On the contrary, ABB’s innovator pair comprised one internal and one external staff. The crux was that the location and working field of the internal employee was quite distant to the HQ. The employee was directly working on an emerging African market while structurally belonging to an European division which was neither locally nor structurally close to ABB’s HQ (Halme et al. 2012; 755). Hence, the informal idea came right out of the field with almost no support of senior managers or divisions and only occasional communication with the corporate sustainability unit. Thus, the development process had to be conducted first in order to convince and commit the senior management (Halme et al. 2012; 757).

On the contrary, the authors also encountered some similarities between both cases which, however, were negatively influencing the innovation processes. One was the short-term profitability expectations. Both companies applied “[…] a time frame comparable to more ordinary innovation ideas aimed at developed markets” (Halme et al. 2012; 755). Additionally, the high uncertainty that is involved in BoP projects conflicts with organizational frameworks and structures (ibid.). The authors conclude that “the ability to innovate for inclusive business is negatively affected by short-term profit maximization, business unit based structures, and a logic of uncertainty avoidance associated with MNC management systems” (ibid.). Hence, the tendency of MNCs to formalize and reduce risk clashes with the objective of maintaining control over the process (ibid.).

Halme et al. (2012; 758f) found that the innovators in both companies, despite their different initial situation, worked a considerable time underground with a high intrinsic motivation. The interplay between organizational structures and the tolerance of entrepreneurial-like activities strongly influences the innovation process, i.e. to what extent organizational structures tolerance people working underground and out-of-ordinary arrangements (Halme et al. 2012; 766). Furthermore, the mindset and the conviction of the responsible employee are crucial to pursue on this uncertain and unsecure path. In the two case studies, both innovator pairs would not let organizational constraints limit their IB innovation endeavours (Halme et al. 2012; 759). It requires a certain mindset to strongly committing and believing in the idea of IB activities. For that purpose, not only an entrepreneurial mindset is of advantage but also a mindset of “[…] ’resourcefulness’, the ability and readiness to identify and deploy sometimes unconventional means at hand, to address the problems that the person considers relevant” (Halme et al. 2012; 763). This individual effort and conviction of an idea, is termed intrapreneurial bricolage12 by the authors in order to capture this phenomenon.

12

Intrapreneurship is defined as “[…] the taking in charge of an innovation by an employee or other individual

working under the control of an enterprise” (Carrier 1994; 59). “The concept of bricolage (…) is manifested in a

process of bricolage through which people use and combine the various resources they have ‘at hand’ as means of

finding workable approaches to problems and opportunities” (Halme et al. 2012; 746).

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6. Empirical cases of ‘base of the pyramid’ innovations The following chapter summarizes the empirical case studies of this research project. The presented empirical results derive from the semi-structured interviews as well as additional publicly available documents. The chapter starts by introducing the case of GE Healthcare which is followed by the presentation of Godrej & Boyce.

6.1. GE Healthcare and its “healthymagination” strategy General Electrics (GE)13 is an American conglomerate consisting of various business units, e.g. energy, transportation and healthcare, among others14. GE Healthcare is the third biggest business division of GE in terms of generated revenues in 2014, following “aviation” and “oil & gas” (GE Annual Report 2014; 10-K 9). With US$ 18.3b revenue in total, GE Healthcare’s largest sub-segment is healthcare systems. The geographical distribution of the revenue generation is remarkable. In 2014, the Asian market accounted for 16% of GE Healthcare’s total revenues and with that was only 1%-point weaker than the European market (GE Annual Report 2014; 10-K 27). This reflects the great endeavor GE Healthcare underwent in the past in order to maximize its potential on emerging markets. Over the years, GE Healthcare has strengthened its position as one of the main players in healthcare technology.

The case of GE Healthcare is recognized as an example for how a company can sustain innovations for advanced markets while simultaneously disrupt its innovations for emerging markets. In the following, GE Healthcare’s transformation into, what literature calls, an ambidextrous organization15 (cf. O’Reilly & Tushman 2008) is presented.

6.1.1. The beginning: 2001-2005 Historically GE’s pursued global strategy followed a glocalization16 approach for the past 30 years (Immelt et al. 2009; 60). By that time, emerging markets as

“India accounted for just 1% of GE’s revenues (…) and occupied roughly the same mindshare of managers with global responsibility” (Immelt et al. 2009; 61).

In 2000, however, GE’s former CEO John F. Welch founded GE’s first R&D center outside the USA. The John F. Welch Technology Center (JFWTC) is located in Bangalore, India and is aiming at capitalizing the R&D potential which can be found in the country (Ramdorai & Herstatt 2015; 95). As the center mainly researched and developed costly, high premium products for the upper class, GE soon realized that its glocalization strategy only reached the few metropolitan areas of the country. This, however, left the majority of the Indian population living in more remote areas still without access to healthcare and specifically to GE’s healthcare products (ibid.). The head of GE Healthcare in India was concerned that back in his home town in rural India there was still no healthcare services available for the local population (pers. comm., Ramdorai, 15/05/29).

13

This paper uses the abbreviation GE when referring to the company at large. When solely targeting the

healthcare division, GE Healthcare is used as reference term. 14

www.ge.com [accessed: May 27, 2015] 15

Ambidexterity is understood as exploitation and exploration of business activities. In reality, this transform into

companies exploiting and sustaining innovations while simultaneously exploring and disrupting new innovation

(O’Reilly & Tushman 2008; 193). 16

“The term is most often used to describe how the process of (economic) globalization is subject to the

countervailing tendencies of (cultural) localization, with an emphasis on social agency and indeterminacy. (…)

[…]the debate about glocalization is central to the argument that globalization is an incomplete and contested

process, countering the charge that local differences are being subsumed within a more uniform global culture”

(Encyclopedia of consumer culture, www).

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Therefore, the engineer from the Indian R&D team started to lobby for a low-cost electrocardiogram (ECG) device in 2001 which would be especially developed for the Indian low-income markets. It was not until 2005, however, that the head of the Diagnostic Cardiology business unit saw the potential of the idea’s realization which in the following years led to the development of the MAC 400, the first ECG device for only about US$ 1,000 (Ramdorai & Herstatt 2015; 96).

During the years of intense lobby work of the Indian team for the project, two hurdles were encountered. First, as the mindset of the top management was not at all focused on emerging markets, the idea did not fit into the strategic objectives of the company. Second, even though slight interest arouse, it was, however, not the budget dedication, which was rather small for this project, that was argued to not be justifiable but rather the justification of man power shifts (pers. comm., Ramdorai, 15/05/29).

6.1.2. Enacting a BoP strategy: 2005-2009 After the head of the Diagnostic Cardiology unit had bought into the idea in 2005, the project unfolded during the following years. German engineers were sent to India a couple of times for supporting the project development with knowledge transfer (pers. comm., Ramdorai, 15/05/29). The overall funding and resources came from the HQ in Germany. Even though, there still remained some unknowns, the project was defined as a strategic investment. This created some kind of inviolability, i.e. the dedicated resources were not taken to fix another business endeavor in crisis (Ramdorai & Herstatt 2015; 98).

GE Healthcare’s first portable ECG device, the MAC 400, was finally launched in 2008. Almost simultaneously, GE Healthcare launched its second generation portable ultrasound device on the Chinese market. It followed GE Healthcare’s first endeavor on an emerging market in 2002 and cut the cost of the first generation by another 50% (Immelt et al. 2009; 63). The successes of both products on their respective emerging markets as well as their successful return to more advanced markets such as the U.S., strengthened GE Healthcare’s business endeavors on emerging markets (Immelt et al. 2009; 56). As also the perception of emerging markets in the top management changed in terms of understanding that “success in developing countries is a prerequisite for continued vitality in developed ones” (Immelt et al. 2009; 58), GE Healthcare introduced its healthymagination17 strategy in 2009 which set the ground for the following restructuring of the entire company.

With the promise of investing US$ 3b in R&D activities to develop about 100 healthcare innovations that are low in cost, high in accessibility and quality, GE Healthcare changed its entire approach towards healthcare solutions and innovations (Immelt et al. 2009; 56). As it reads on the strategy’s website:

“Healthymagination is working toward better health for more people. We’re committed to continuously developing and investing in innovations that deliver high-quality, more affordable

healthcare to more people around the world. It’s a lofty mission that requires a collaborative team to drive innovations”18.

However, this endeavor is

“[…] a lot easier said than done since the centralized, product-focused structures and practices that have made multinationals so successful at glocalization actually get in the way of reverse

17

http://healthymagination.gehealthcare.com/en [accessed: May 27, 2015] 18

http://www.ge.com/globalimpact2013/#/healthymagination [accessed: June 02, 2015]

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innovation19, which requires a decentralized, local-market focus” (Immelt et al. 2009; 58).

Hence, GE Healthcare started to restructure its organizational structures and processes which did not go without conflicts.

6.1.3. Adoption of learning experiences: 2009-now The launch of the MAC i 400, an even more cost-optimized second generation ECG device for the Indian BoP market, was considered GE’s breakthrough with so-called frugal innovations20. However, since the company has followed a glocalization strategy over the past, power as well as profit & loss (P&L) responsibilities were located in the business units’ headquarters in the “developed” world. With the introduction of the healthymagination strategy in 2009, the Indian R&D center got its own P&L responsibility which was the first time that another country, additional to the U.S., had its own P&L responsibility (Ramdorai & Herstatt 2015; 99). That allowed the Indian subsidiary to head not only budget allocation but also portfolio decisions (ibid.). In the following, the entire organizational structures of GE Healthcare adopted to the new strategic orientation of the company. The former division into product groups now was extended by a division into a value segment and a premium segment of each product group. The value segment for a product group was located in the respective country, i.e. India or China, and tasked with the development and marketing of products for the respective market (Immelt et al. 2015; 63).

This organizational change accounted for several improvements for the local subsidiaries in terms of secured empowerment and independency. First, through a slimmer and more direct reporting process to GE HEalthcare’s top management, decision making, spotting of opportunities and acting upon them became faster (Ramdorai & Herstatt 2015; 99). Additionally, the Global Growth Organization (GGO) was founded in 2010 which was an overhead unit with own budget and processes (Ramdorai & Herstatt 2015; 111). The “In Country For Country” (ICFC)21 program fostered the organization’s objective of empowering emerging markets by dedicating own resources and autonomy. The GGO was headed by GE’s vice chairman which not only fastened reporting processes but also opened up funding opportunities for, otherwise, low-prioritized and neglected business opportunities (Ramdorai & Herstatt 2015; 112). Second, the company’s overall evaluation criteria adapted to the newly experienced business activities. While the “old” evaluation relied upon a classical sustaining innovation mindset, i.e. can the innovation at hand recognizably improve the quality of a healthcare solution for current customers, the “new” approach promoted a mindset of enhancing quality and access while lowering the costs (Ramdorai & Herstatt 2015; 113). These evaluation criteria were introduced to all product development processes within GE Healthcare and moved a project’s evaluation upfront, i.e. before the actual product development process starts (ibid.).

“It ensures that disruptive innovations, which previously couldn’t have fulfilled the strategic filter criteria of demonstrable quality improvement, get priority because of their value proposition to

increase access or decrease costs substantially vis-à-vis status quo” (Ramdorai & Herstatt 2015; 114).

19

GE calls the process of developing the ECG for India as well as the ultrasound for China which then were taken

global reverse innovation. This stands opposing to the glocalization strategy which develops an innovation in the

home country of a MNC which is then taken to a low-income market. 20

A definition of the word “frugality” by the Oxford dictionary defines frugality as “the quality of being economical

with money or food; thriftiness”. Transferring the definition to a business context, frugal is identified as “meeting

the desired objective with a good-enough, economical means” (Soni & Krishnan 2014; 31). 21

The ICFC program is for products that are designed in the country for which they are targeted.

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Changing long established structures is not an easy endeavor, especially not in a conglomerate like GE. Hence, as GE’s CEO Jeff Immelt noted,

“[…] the company’s top leaders have to play a major role. To do so, they must investigate firsthand the size of the opportunity and how it could be exploited and encourage the teams

running the corporation’s businesses to do the same” (Immelt et al. 2015; 61).

Overall, GE Healthcare’s restructuring and shifting of mindsets enabled the successful entrance on BoP markets in India and China. The following quote of Jeff Immelt summarizes the change the company has gone through the last years.

“Ten years ago when GE senior managers discussed the global marketplace, they talked about “the U.S., Europe, Japan and the rest of the world”. Now they talk about “resource-rich

regions,” such as the Middle East, Brazil, Canada, Australia and Russia, and “people-rich regions,” such as China and India. The “rest of the world” means the U.S., Europe and Japan”

(Immelt et al. 2009; 59).

6.2. Godrej & Boyce’s ChotuKool refrigerator Godrej & Boyce (G&B) is an Indian conglomerate which was founded 1897 and comprises today 15 business units, e.g. appliances, construction, furniture, electricals & electronics, among others22. With combined annual revenues of US$ 4.1b for the fiscal year 2013-201423, G&B is one of India’s biggest and most innovative enterprises. In 2007 G&B’s appliance business unit started an innovation project for a low-cost refrigerator for rural India which was the start to a reinvention period of the entire company.

6.2.1. Getting started: 2007 The Indian market for refrigerators is limited. Only about 20% of the Indian population is able to afford a refrigerator device while also having appropriate conditions in terms of electricity. This limited market is highly competitive as major players fight for increasing their respective market shares on that limited market. G&B lost its market leader position to global players as LG, Samsung and Whirlpool (Kumar, 2009). Instead of fighting to regain its leader position, G&B decided to enter the market of the 80% of the Indian population who were, so far, underserved – not only with refrigerators.

This initiative was started by G&B’s CEO.

“He had a noble mind to bring about societal change. He wanted to reinvent the entire company.” (pers. comm., Singh, 15/06/16)

With that decision, G&B started its innovation journey with a seminar about disruptive innovations held by the renowned Prof. Clayton Christensen24 who had been researching in this field for several years. The workshop’s participants were the company’s top leadership and middle management (pers. comm., Singh, 15/06/16).

“We started off the work of disruptive innovation with this seminar work. He transferred the learnings and knowledge of disruptive innovations to the entire organization”.

(pers. comm., Singh, 15/06/16)

22

http://www.godrejandboyce.com/godrejandboyce/index.aspx?id=16 [Accessed: June 16, 2015]. 23

http://www.godrejandboyce.com/godrejandboyce/Pdf/GnB_Corporate_Profile.pdf [Accessed: June 16, 2015]. 24

Clayton M. Christensen is an US American professor at the Harvard Business School. He is considered one of the

most influential experts in the field of innovation. With his book “The Innovator’s Dilemma”, Christensen was first

to coin the term and theoretical concept of “disruptive innovations”. The best-selling book was considered one of

the six most important business books ever written by the Economist in 2011.

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This workshop set the ground for how to target the Indian BoP market. A team led by G&B’s vice president undertook field trips to rural Indian villages with the aim of observing the daily life of rural communities. Through these field trips, the company wanted to really understand its users’ lifestyles and needs.

“Can we understand what people need, what their lives are, what kind of struggles they go through every day. We went ahead to understand the users’ lifestyles and to understand the

context where they live. That gave us the insight that their need was just a cooling need which serves the purpose of preserving some leftover food and some cold water. They don’t stock vegetables for a week but rather stock it on a daily basis. Having that in mind, the idea of

ChotuKool evolved.” (pers. comm., Singh, 15/06/16)

After the idea of developing a refrigerator was created and the users’ needs were defined in co-creation with Prof. Christensen in the workshop, the task of realizing the project was shifted to G&B and entirely executed by a tasked innovation team (pers. comm., Singh, 15/05/16).

6.2.2. Realization of the idea: 2007-2009 After the top management had born the idea, a small team of 4-5 people was tasked with the actual realization of the project. The innovation team had the full responsibility over taking the idea and defining an appropriate business model and business strategy yet being strongly supported by the larger organization. (pers. comm., Singh, 15/06/16).

“For taking an idea ahead a larger organization’s support is required. If we talk about larger organization’s support we talk about the entire R&D, procurement, supply chain, manufacturing

and information technology team. Every department has to contribute in its own way when we are doing a product development project. That is the whole idea that every function contributed to

this.” (pers. comm., Singh, 15/06/16)

The strong company support was channeled by the foundation of G&B’s Innovation Center. The center had already been conceptually planned before ChotuKool’s, a refrigerating device, innovation process started. However, the physical foundation did not come into existence two to three years later (pers. comm., Singh, 15/06/16). The Innovation Center is an organizationally separate entity that has own dedicated resources, mainly in form of 20-25 employees (pers. comm., Singh, 15/06/16). Further resources are dedicated on a project-basis. The center is headed by G&B’s CEO and is the pool of G&B’s innovation culture.

“The Innovation Center is a dedicated space in G&B where the entire innovation culture is being integrated into the larger organization. Innovation project are driven from the innovation teams in

the Innovation Center only. It is a place where the learnings happen, where the whole idea creation happens and where the ideas transform into future businesses. This will help G&B to be

market leader again in the future. The Innovation Center is supported by the 14 business divisions. It sense out the innovation culture for the larger organization.”

(pers. comm., Singh, 15/06/16)

Through the organizational separation the ChotuKool project was able to fully unfold as it was granted time not only in terms of fully realizing its potential but also in being allowed to make adjustments in the course of the project. As the ChotuKool project was the first project for G&B that was targeting BoP consumers, the project experienced changes and adjustments throughout its course due to learning experiences and knowledge gains.

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“We had a vision where we wanted to go but apart from that details emerged as we went. It cannot be finalized in the beginning itself. As you move ahead with the project, then you begin to

reformulate your strategy. Then you go a few more steps and look back with your learnings of which direction you should take. The process is emerging. You cannot foresee everything from the

beginning.” (pers. comm., Singh, 15/06/16)

In order to recognize necessary changes and adjustments, the innovation team employed internal review mechanisms in which the project was broken down into actionable parts which were monitored by the innovation team. However, being part of the larger organization, the project, of course, also had an annual assessment at the corporate level. As the company is and was proud of its innovation at all times, the corporate assessment of the project was not a hindering factor (pers. comm., Singh, 15/06/16).

In 2009, finally, the first generation of ChotuKool refrigeratior was launched for rural Indian households. Even though the company had dedicated significant time and effort in understanding the consumers’ needs, running pilot projects and adjusting the approach if necessary, G&B discovered that the adoption of this new technology takes time and the penetration of the market does not follow the “rules” of more advanced markets (pers. comm., Singh, 15/06/16).

6.2.3. Improvements and continuation of ChotuKool: 2009-now After the launch in 2009, G&B did not stop its innovation journey. The first generation ChotuKool refrigerator followed a second generation which could cool a slightly bit more at the same cost level. The following third generation was then a slight improvement in technology and with that the price for the device slightly increased (pers. comm., Singh, 15/06/16). This trend, however, was partly intended as one of the biggest learning outcomes of this innovation process was that

“BoP consumers will not buy things just because they are targeted at this market. When top of the pyramid consumers adopt it, then they aspire this product also.”

(pers. comm., Singh, 15/06/16)

Interestingly, G&B experienced with its ChotuKool that the adoption of the target consumer group was not as fast as the company had hoped for. What they found was that BoP consumers are more likely to develop aspirations to owning a product when this product is also adopted by the top of the pyramid consumers. G&B, therefore, adjusted its business model for the ChotuKool. As it is now a lifestyle product for the top of the pyramid, the refrigerator can now be customized and is only manufactured on demand. Top of the pyramid consumers in India are now able to order their customized cooling device online. In order to not exclude the BoP consumers, G&B sends out contact persons to the rural communities who take the orders from BoP consumers and order the devices online on behalf (pers. comm., Singh, 15/06/16).

As a result of these adjustments,

“The penetration has increased from previously three states to eleven states.” (pers. comm., Singh, 15/06/16)

Furthermore, the company was able to also cut some production costs in terms of storage costs that were dropped and decreased man power in order to make this business endeavor sustainable and self-sufficient for the future as

“ChotuKool was (just, editor’s note) the start of the innovation journey for G&B.” (pers. comm., Singh, 15/06/16).

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7. Analysis This chapter analyses the above presented results against the theoretical backdrop which was discussed and developed in chapter 4. For that reason, the three categories strategic orientation of innovation (cf. chapter 4.2.1), process structure characteristics (cf. chapter 4.2.2) and organizational structure characteristics (cf. chapter 4.2.3) are used for analyzing the empirical results.

7.1 Strategic orientation of an innovation In terms of strategic orientation of an innovation, the BoP endeavors of GE Healthcare and G&B align very well with the aspects discussed in the theoretical framework.

G&B’s case study revealed that the company strongly emphasized the understanding of their customers and the nature of a BoP innovation before embarking on this uncertain endeavor. It confirms the theoretical assumption of Gatignon & Xuereb (1997; 87) that customer orientation, in contrast to technology or competitor orientation, is essential when the market is highly uncertain and unknown. The seminar workshop led by Prof. Clayton Christensen transferred the required knowledge to the entire company in form of the top and middle management and not only to the innovation team. This strengthens the company’s commitment to thoroughly execute this new business segment development. In the course of the workshop, a small team of employees was sent out to spend a considerable amount of time onsite to fully understand the way of living and doing things of rural Indian households. This strongly uses the theoretical understanding of customer perception which said that individual, conditional and contextual perspective is strongly influenced by a customer’s situation, living context and former experiences (Smith & Colgate 2007; 8). It becomes apparent that the company valued this thorough understanding and analysis as highly important for the innovation endeavor as the outcome has to perfectly match the consumers’ needs. G&B, thus, found out that rural Indian households only needed a small cooling device instead of a full refrigerator since fluctuating income does not allow a big stock of food. In general, G&B’s case confirms the importance of customer orientation of innovation processes as suggested by Rothwell et al. (1974) while making it to an important focal point of the process.

Here, the business concept of the added value for a consumer offers the necessary framework for assessing BoP consumers’ needs as the concept does not only offer an explanation for a consumer’s willingness to pay but also on how to materialize the innovation for the company. The first aspect of the added value is the consumers’ perception of an innovation’s competitive advantage in terms of unique innovation features (Cooper & Kleinschmidt 1993; 75). It is important to note here that companies will have to compete against “different competitors” than they are used to on more advanced markets. In the case of ChotuKool the real competition was the traditional way of cooling with plant leaves. Competition here is, thus, not so much against other companies that offer a similar innovative product but rather competing against traditional, cultural ways of doing things. Furthermore, as Subrahmanyan & Gomez-Arias (2008) revealed consumption on BoP markets follows a different hierarchy of needs in comparison to Maslow’s respective well-respected findings. The authors discussed that BoP consumers are more willing to sacrifice on basic needs for the sake of the fulfillment of higher needs. These findings were verified by G&B’s experience of the adoption of the ChotuKool refrigeration among rural Indian households. It was not until top of the pyramid consumers adopted the ChotuKool as a lifestyle product that the adoption on the BoP segment really started to grow. Therefore, the framework of the 4A’s is very crucial as it provides a guideline of crucial aspects that influence an innovation’s success.

Furthermore, taking on a more company focused perspective, the second aspect of the added value concept defines the materialization of an innovation in terms of the applied business model. As discussed in chapter 4.2.1, the revenue stream of a product can significantly differ according to the

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applied business model, assumed that the product itself remains the same. Especially, in the light of BoP markets, the business model is crucial for distributing and commercializing an innovation. For that reason, this paper’s understanding of an innovation expands from products and services also to business models. Overall, it can be stated that “value for customers” in the context of BoP markets is more decisive than the “value for the company”.

7.2 Structural process characteristics When remembering back to the theoretical framework, rigorous planning & early specification, pre-development activities and formalized project selection were the three factors discussed as structural process characteristics. The following analysis shows the structural process characteristics that were encountered in the empirical case studies presented above. These findings are discussed and compared against the theoretical backdrop in the discussion chapter (cf. chapter 8).

7.2.1 Rigorous planning & early specification As shown in the theory part, rigorous planning & early specification of a project is very crucial and one of the three most important factors for a successful innovation process (Cooper & Kleinschmidt 1987; 180). Aiming at reducing uncertainties and identifying all relevant milestones, thorough planning activities will help to improve efficiency and obtain a better understanding.

Acknowledging the novelty and unfamiliarity of the new markets, BoP projects lack the ability of thorough and detailed planning. Even though a company strives, of course, at planning the project as detailed as possible, several unknowns and uncertainties will remain which will also require adjustments in the course of the project as G&B’s case revealed.

“I cannot fix an approach. The approach can only evolve while moving to achieving some goal. The experience from the ChotuKool journey cannot be generalized to innovation processes. It is

really customized.” (pers. comm., Singh, 15/06/16)

This quote emphasizes this flexibility of the ChotuKool innovation process while highlighting that the gained experiences are unique to this project and cannot be transferred to the next project. However, in order to cultivate the company’s experience and innovation culture, the Innovation Center was established. The Innovation Center has own dedicated resources, mainly man power, which are solely used for its realization and are not taken for fixing other projects in crisis. As it is headed by the company’s CEO directly, reporting and communication channels are short which emphasizes the strategic priority of the company’s innovation culture. This separate unit is the beginning of the reinvention of the entire company which the CEO envisions and for which the entire BoP engagement started.

BoP innovation processes are an emerging process which’s course can be frequently alternated due to new insights and experiences. For this, it was crucial that G&B allowed the project to fully unfold over time, i.e. it was not forced into rather short-term time frames that are commonly applied for innovation projects. Furthermore, as the entire endeavor was new for the company, the top management left enough room for the project to change and adjust to newly emerged experience. The case shows that rigorous planning and early specification of BoP projects is difficult due to its novelty and unfamiliarity. This can be quite challenging for a company as stakeholders as well as profitability and risk assessment frameworks usually demand minimizing risks and uncertainties.

The innovation team of GE Healthcare, therefore, started to move risks upfront by testing and doing things as early as possible in the process, e.g. funding a small team that identifies

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customers’ needs on-site which is not part of the actual innovation team as emphasized by this quote:

“So what we are trying to do is, try to move risks up to the front of the program, do things as early as possible...Can we find out the customer needs before even we embark on a New Product

Introduction, which means can we fund a small team to go and identify needs even though it’s not part of any NPI process, so that once a need is identified then we can put it to the NPI process

very quickly. Can we mitigate technology risks earlier in the process as a separate activity, not as part of the NPI process…All of those [go to market] strategies have to be thoroughly thought of. So the entire supply chain piece, the entire commercialization piece, the service piece… all this

has to form the go/no go for the product development" (Ramdorai & Herstatt 2015; 122).

Nevertheless, uncertainties remain as BoP projects are much harder to plan thoroughly and specify at an early stage due to the unfamiliarity with the local needs and market characteristics. Hence, moving risks upfront seems a feasible solution for combating these risks.

7.2.2 Pre-development activities Cooper & Kleinschmidt (1993; 75) showed that the biggest difference between winners and losers of an innovation process lays in the quality of the pre-development activities. It is, therefore, one of the three most important factors for a successful innovation process according to the literature.

This could also be seen in the case studies. GE Healthcare engaged in several pre-development activities before the actual innovation process. This was necessary as it strived to reduce the risks that accompany an innovation process. Pre-development activities involved: identifying customers’ needs by funding a small team that assess the needs on-site, mitigate technology risks early as a separate activity and not as part of the innovation process. In total, the entire supply chain, commercialization and service part of an innovation has to be considered before the actual innovation process starts. Also G&B engaged in thorough pre-development activities which mainly included on-site visits of rural Indian households to thoroughly understand the consumers’ needs as well as a preparatory workshop with state-of-the-art researcher Prof. Christensen.

After G&B’s CEO decided, due to competitive pressure, to shift the company’s strategic focus to the Indian BoP markets, the company engaged in several activities before actually starting the development process. First, the workshop with Prof. Christensen took place in which the top management was informed about the state-of-art research about disruptive innovations. In the following, the company sent a small team out to rural India to experience on-site the most pressing needs of the Indian low-income households. The results were taken back to the top management and in co-creation with Prof. Christensen the refrigerator idea was born. These pre-development activities enabled the company to understand that the need for rural Indian households was not an entire refrigerator device but rather just a cooling possibility for some leftover food.

Hence, it can be stated that pre-development activities are also very crucial for BoP innovation processes, especially with regards to the specialties of the customers’ orientation as discussed in chapter 7.1.1. However, this study fails at understanding the actual importance of pre-development studies in comparison to the other enabling factors as well as its significance in comparison to a generic innovation process. Hence, this paper refrains from weighing pre-development activities as of major importance while acknowledging its general importance.

7.2.3 Formalized project selection When selecting projects for implementation by weighing projects against each other, a number of methods and techniques are available for a formalized project selection. Generically, these can be divided into strategic considerations, individual project evaluation and portfolio selection.

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Strategic considerations and assessments are usually used to align innovation projects with the company’s overall strategic objective and resources. Hence, if a project is not in line with overall strategy of a company, its possibility of realization decreases. Due to their novelty, BoP projects are already quite unique and often not in line with a company’s strategic direction. The case of GE Healthcare revealed that there was no alignment of the project with the company’s direction at first. Hence, lobbying for the project was quite long lasting and difficult. In contrast, the decision of engaging in a BoP project was taken by G&B’s CEO himself which helped the project to fully unfold as the CEO provided the necessary room and flexibility for the project.

In the course of GE Healthcare’s BoP journey, the corporate strategic orientation changed which led to a reconsideration of the company’s values and evaluation criteria used for evaluating projects individually. Individual project selection commonly relies on a more short-term, risk averting assessment of the projects as a company’s stakeholders demand a rather conservative handling of risks and spending (Archer & Ghasemzadeh 1999; 209). However, BoP projects are more long-term investments that fail a rather short-term assessment. The empirical case study of GE Healthcare revealed that one of the most important structural adaptations to make at the beginning of a BoP project is to define the project as a strategic investment, i.e. a long-term investment. With this declaration, the project has more room and flexibility to develop and is not limited by the rather short-term focused evaluation criteria, e.g. ROI, NPV, etc., a company usually applies. It is a company’s aim to maintain a balanced portfolio in terms of anticipated risks and revenues. BoP projects due to their different nature of a long-term strategic investment are a quite unequal competitor to more mainstream projects.

In conclusion, it can be stated that formalized project selection is probably one of the most hindering factors for a BoP project due to the commonly applied short-term and risk averting evaluation criteria and strong competition of more mainstream projects. Hence, these often already strand BoP projects.

7.3 Organizational process characteristics In the following, the organizational process characteristics for the respective BoP projects of GE Healthcare and G&B are presented. In theory functional competence & cross-functional teams, strong project leader and top management support were the important factors.

7.3.1 Functional competence & cross-functional teams As literature revealed, the advantage of functional competence & cross-functional teams is not to be found in a cross-functional team, in comparison to a team with only functional competence, but more on how to staff and equip this team (McDonough 2000; 222f).

Based on the rather open questions of the semi-structured interviews, a strong influence or importance of cross-functionality is not suggested. The case studies did not reveal any special or strong influence of cross-functionality. Nevertheless, the case of G&B suggests that working cross-functions and cross-divisions enables making use of specific functional knowledge and experiences as the tasked innovation team does not possess all required functional specialist knowledge. One of the quotes stated above perfectly summarizes how the collaboration among different departments and divisions supported the project (cf. p. 35). While the innovation team had the functional competence over the business model and strategy, all other departments that are contributing to a successful product commercialization were consulted on demand, e.g. if questions about the supply chain emerged, the supply chain department was consulted for collaboration. Furthermore, as the Innovation Center is a separate unit it does not only collaborate with the different departments of one business division but also with G&B’s entire business divisions. Thus, the Innovation Center pools the entire existing knowledge within G&B and can be seen as an incubator for G&B’s innovation culture.

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However, one aspect became apparent, especially in the GE Healthcare case. As GE Healthcare located the innovation team in the respective BoP market, in this case India, the cross-functionality of the team was expanded to internationality as German and Indian engineers, for instance, collaborated on developing the right technology.

7.3.2 Strong project leader As stated in the theoretical discussion a strong project leader is the linkage between the project team and the top management in terms of communication, team building, planning and stakeholder involvement (MC Donough 2000; 225). This role is not diminished in a BoP project. Rather, the role of the project leader is found to be vastly stronger in a BoP project in two different manners.

As stated in the theory part, a strong project leader is characterized by either a strong vision of the project or by strong authority and ability of taking decisions. The GE Healthcare’s case revealed that the major driving factor for the project which made the project take off at all, was the persistence and passion of the head of GE India. His personal experience in his home town created a kind of championship for this project. During the beginning, it was the strong commitment of the head of GE India who lobbied for the project within the company. In this early phase of the engagement, the GE Healthcare’s case perfectly shows that having a project champion was crucial. A champion as described in the theory part is a person that takes on a project as their own (Schon 1963; 84). Through this, the champion nurtures the project and commits time far beyond the scope of work responsibility. As can be seen in GE Healthcare’s case the nurturing for the project can possibly take a long time (here almost four years). Hence, persistence was the key to success.

Thus, it can be stated that even though literature suggests no clear positive influence of a champion on an innovation process, the empirical findings of this paper suggest a slightly different role. As in GE Healthcare’s case, the champion was the first to introduce the idea and potential of BoP market activities to the company. His commitment to the project’s idea eventually resulted in its realization. As the top management is more unlikely to introduce a BoP project out of their own interest, due to insecurity and novelty of the market and the endeavor, it is up to employees from the field to introduce the company to these new market potentials. This struggle might be long-lasting and challenging for the champion. However, a strong project leader and its role within an innovation team is not diminished by a BoP project. BoP projects rather require a strong champion who nurtures and advocates the project against all adversities, especially in the beginning and taking off of the project.

7.3.3 Top management support A champion is limited in its scope of actions as structural requirements, as discussed in the previous subchapter, are not in favor for BoP projects. Hence, convincing the top management and getting them on board for the project is essential to change the structural environment for the project. Literature, however, suggests that top management support in terms of creating an appropriate environment and allocating sufficient resources has a rather weak contribution to an innovation process (Cooper & Kleinschmidt 1995; 181). It is not an important field of studies in relation to innovation processes. Nevertheless, literature acknowledges two kinds of top management support: support from the top management itself and top management support that needs to be enhanced or triggered (Zirger & Maidique 1990; 880). All case studies revealed the significance and central role of the top management for BoP projects. Yet the allocated role and the support can potentially differ significantly between the cases.

In the case of G&B the idea to engaging in a BoP project came from the company’s CEO himself. This circumstance and the strong commitment fostered the project’s success. As the CEO embodied the project champion by introducing the idea to the company, he also created the

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required space and flexibility that is needed for such an endeavor. On the contrary, the case of GE Healthcare revealed a slightly different role of the company’s top management. Here, a champion strongly lobbied for the project over years which eventually resulted in the top management’s participation. Hence, the hurdle of persuasion lay before the actual innovation process. The top management here was rather an enabler and adopter of structural factors to fully realize the potential, e.g. adjusting the company’s strategic orientation by introducing the healthyimagination strategy. Thus, in all cases top management played a decisive role in the progress of the BoP projects, especially for allowing more flexibility and long-run thinking by defining the BoP project as a long-term corporate strategic investment. This finding is very different to what literature suggests for a generic innovation process where top management is only a weak influencing factor.

One aspect that needs to be discussed in this context is a company’s corporate values. Corporate values, as discussed in chapter 4.2.3, can define a company’s overall vision ad mission and, hence, set the ground for specific projects whereas other projects already fail this alignment. However, the diversity of the presented handling of corporate values in the case studies suggests that corporate values do not play a decisive role in the pursuit of a BoP strategy. Whereas Novozymes as well Nokia already had corporate value in place that theoretically allowed a BoP project, their existence, however, did not influence the company’s and employees’ perception and intra-organization structures towards the project. In comparison, GE Healthcare changed its overall mission not until the first successes of the first BoP projects showed and the future prospects of this strategy became more clear and tangible. Thus, the existence of corporate values before the first engagement on BoP markets is not necessary or foster a BoP projects whereas the general, even later existence of these strongly helps the alignment of the new strategy with the companies’ other projects, as can be seen in GE Healthcare.

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8. Implications for innovation processes of internationally operating companies

The following chapter finally answers this study’s research questions as presented in chapter 1.2. Therefore, the above presented analysis is related to other case studies as well as compared to the theoretical findings. First, this chapter discusses the differences and challenges that accompany a ‘base of the pyramid’ innovation process followed by the identification of key factors for a BoP innovation process which arouse from the empirical case studies.

8.1 Major differences and challenges of ‘base of the pyramid’ innovation processes

As the theoretical part discussed, there are seven enabling factors that influence an innovation process: strategic orientation of an innovation, rigorous planning & early specification, pre-development activities, formalized project selection, functional competence & cross-functional teams, strong project leader and top management support. The following table 5 synthesis now the findings of the analysis of a BoP innovation process as well as the accompanying challenges.

Table 5: Synoptical table of results from analysis

Main findings Strategic orientation of an innovation Customer orientation The focus on customer orientation was strengthened in a BoP innovation process as a

company is unfamiliar with local consumers’ and market needs. It is argued that understanding consumers’ needs facilitates a better matching of an innovation with actual needs and demands. Hence, a focus on “value for the customer” enhances an innovation’s adoption in comparison to focusing on “value for the company”.

Structural process characteristics Rigorous planning & early specification

Rigorous planning & early specification is not as important in BoP innovation processes as in a generic innovation process. Due to the novelty of the endeavor and the market, uncertainties and risks remain which make rigorous planning and an early specification of the project impossible. Here, companies need to make room for flexibility and adjustments in the course of the project.

Pre-development activities

Pre-development activities remain important and decisive to a successful innovation. As mentioned before, companies are unfamiliar with the local needs and market structures, hence, thoroughly executed homework enhances the understanding and therefore also the appropriateness of the innovation.

Formalized project selection

Formalized project selection is found to be one of the most important factors for BoP innovation processes. As companies usually establish rather short-term evaluation criteria and profitability expectations, BoP projects fail internal assessments and comparisons. Hence, it is vital to define a BoP project as a long-term strategic investment which does not need to fulfill short-term profit expectations.

Organizational process characteristics Functional competence & cross-functional teams

In terms of functional competence & cross-functional teams no difference in significance could be found. It is suggested that well-equipped cross-functional teams, as discussed in literature, are also decisive for BoP projects. However, internationality needs to be added with regards to BoP innovation processes.

Strong project leader Especially the case study of GE Healthcare showed that a project champion for BoP projects is a highly important factors, especially in the starting phase. Strong personal commitment is necessary for engaging in lobbying for the project and nurturing it in the following.

Top management support

Top management support is decisive in terms of adjusting structural factors and strategic orientation as well as enabling more flexible work for the project. Corporate values do not seem to play a decisive role.

In short, the analysis of the empirical cases and the approaches that GE Healthcare and G&B took to their respective BoP projects revealed that the enabling factors which are discussed in literature were not found to be irrelevant or unimportant. Rather, the visualization of the respective companies’ innovation processes strengthened the significance of some factors, i.e. customer

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orientation, project selection, project champion and top management support whereas others decreased in importance, i.e. rigorous planning and early specification. The remaining two factors, i.e. pre-development activities and functional competence & cross-functional teams no significant difference of influence could be found. In conclusion, whereas in literature customer orientation, rigorous planning & early specification and pre-development activities were the three most important factors for a generic innovation process, customer orientation, project selection, a strong project champion and top management support are the more important factors for a BoP project.

8.2 Additional factors of a ‘base of the pyramid’ innovation process The above presented analysis suggests two additional factors that seem to be important for BoP projects and need to be discussed in the light of other research findings – strategic (re-)orientation of a company and an independent business unit. Additionally, the research field of the paper’s focus is rather small. However, two studies (as presented in chapter 5.3) were found which also focus on internal factors that influence a BoP innovation process. The two conclusions – intrapreneurial work approach and mindsets - drawn from these two empirical studies are shortly presented.

8.2.1 Strategic (re-)orientation of a company An additional remark has to be made in terms of the overall strategic change a company undergoes when engaging with a BoP project. Pursuing a BoP strategy is a change in a company’s overall strategic direction as the case study of GE Healthcare and its healthymagination strategy revealed. With this strategy that applies for the premium as well as for the value product segment, GE Healthcare manages structural differentiation that is necessary to fulfill the respective potentials while promoting integration into the company’s overall vision and strategy. GE Healthcare’s restructuring of the entire division reflects the learning experience GE underwent and reveals very nicely where the bottlenecks for BoP projects are.

First, the healthymagination strategy set the stage for the mindset shift that is needed for BoP projects. The so-far applied and practiced sustaining mindset of remarkably improving the quality of GE Healthcare’s solutions for its major customers, i.e. hospitals and doctors, was replaced by a more disruptive mindset of improving quality and access at adequate costs for the patients. With this shift that was implemented throughout GE Healthcare, not only for BoP projects, GE Healthcare is able to better meet its customers’ needs all around the globe.

Second, GE Healthcare founded another structural entity, the GGO. The GGO is a spanning, structural organization which empowers and supports emerging market projects. By enacting the ICFC program GE Healthcare makes sure that funding that is allocated to BoP projects is also applied there.

Overall, GE Healthcare’s restructuring is one of the most important and forward-driving structural process factors that fostered the success of the BoP projects and especially their long-term implementation and support. BoP projects are very likely to not be compatible with conventional projects and rather short-term focused evaluation criteria.

8.2.2 Independent business unit In the course of the strategic (re-)organization of GE Healthcare in terms of introducing its healthymagination strategy, GE Healthcare took its organizational change one step further. GE Healthcare founded an independent business unit which is solely responsible for BoP projects. GE’s restructuring follows the theoretical concept of an ambidextrous organization. Ambidexterity defines simultaneous exploration and exploitation, i.e. how an organization explores new market possibilities while exploiting established markets (O’Reilly & Tushman 2008; 193). Thus, GE Healthcare’s division of a premium and a value segment reflects this approach. While the premium segment exploits the already established markets in familiar more advanced markets, the

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value segment explores new market possibilities on BoP markets. GE Healthcare’s restructuring is far-reaching and shows strong commitment. When analyzing the empirical case of GE Healthcare and its organizational restructuring several advantages can be found.

First, reporting processes were shortened significantly. Whereas formerly the head of the regional business unit reported to the head of the corresponding GE Healthcare product business unit, the new structure allows the product business leaders to directly report to the CEO of GE Healthcare India who in turn directly reports to GE Healthcare’s vice chairman. Despite a more efficient and fast communication process, having the responsible person on-site will not only fasten decision making processes but also, for the long-run, the development of local capacities in order to fully realize the potential that lays in these markets.

Second, risk and assessment was moved upfront. All projects are evaluated according to the three pillars, costs, access and quality, before the actual new product introduction starts. Acknowledging the increased risks and time requirements moving risks upfront enables GE Healthcare to mitigate some financial risks of innovations for BoP markets (Ramdorai & Herstatt 2015; 123). This ensures not only that formerly disregarded projects can demonstrate their added value for the patients and the company when competing against projects with higher expected revenue streams but also that customers’ needs and, therefore, the pre-development activities are done thoroughly.

Third, GE Healthcare’s Indian subsidiary got its own P&L responsibilities. This has two advantages. First, GE India is also responsible for its own growth and portfolio and, therefore, also for the allocation of its own budget. Second, with this responsibility also comes along a great flexibility and freedom to decide which projects obtain funding. Basing the decision on selection criteria unique for this unit and its purpose will help to level out the competition between BoP and non-BoP projects.

Implementing an independent business unit with own responsibilities and evaluation criteria requires strong top management support. It can if put in place properly solve some of the issues that are shown in the analysis as the separate business entity can be designed to not be strictly bound to the application of conventional criteria. It might be one of the most applicable steps to change the structural environment for BoP projects and give them more freedom and flexibility. On the contrary, a more intermediate solution is setting up just one separate business unit which is solely responsible for BoP projects. This unit has to be closely connected not only to the HQ but also to the respective target country while being independent as to having unique status in the company’s organizations to be more flexible in its work processes and methods. Setting up an independent business unit could also serve as an incubator for promoting the needed mindset and openness within the company. This approach is taken by G&B. The company’s Innovation Center acts as an incubator for innovation ideas and projects. It is closely connected to the HQ while having own dedicated resources. Nevertheless established routines and work processes might not be appropriate in serving a BoP project. Hence, a re-thinking of the work approach has been discussed in literature. This is especially important in case of a decentralized approach, i.e. the top management is not yet convinced of the idea and employees are faced with resource constraints. Passionate employees will nurture the project by dedicating a serious amount of personal time and resources for the project which, in turn, should be at least tolerated if not promoted.

8.2.3 Mindsets and work approach The mindset of employees and a company is a rather indirect factor but which implicitly underlined some discussed factors. As can be seen in the case of Novozymes (cf. Olsen & Boxenbaum 2009), the conflicting mindset of the employees hindered the first attempt of engaging in a BoP project. In the case of GE Healthcare, the relocation of the German engineers to India, for a short period of time for knowledge exchange was perceived with rather displeasure. On the contrary, finding a person, e.g. the head of the Diagnostic Cardiology of GE Healthcare or G&B’s

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CEO, who has the appropriate mindset, i.e. believes in the idea, can help a BoP project to take off.

When innovating under uncertainty and risk for low-income markets, the tasked employees need to have a certain work attitude and mindset for that topic in terms of refusing limiting organizational constraints, creatively using the scarce resources and applying a resourceful mindset. Dedicated employees tend to spend a considerable amount of time to a BoP project. Halme et al. (2012) even found that tasked employees worked considerable amount underground, i.e. in their free time, due to strong commitment to the topic. The authors, therefore, term this working attitude as intrapreneurial bricolage as it shows similarities to entrepreneurial mindsets but within a company (Halme et al. 2012; 767). However, as this strongly emphasizes the employee’s character, the company also has to do its stint. Tolerance of intrapreneurial behavior is as important as having intrapreneurial minded employees with special creativity in terms of re-defining a technology’s purpose.

8.3 Limitations and future research This paper discusses the influence of internal factors of an innovation process for BoP markets. As this topic is still in its infant shoes, there are some limitations to its findings and various points of reference for future research.

One limiting factor for the universal validity of the findings is the fact that the findings solely rely on two company case studies. Hence, the findings can only act as an example and connecting factor. Applying a similar research design for other companies can enhance the findings’ reliability and generality. In that manner, comparative studies of companies from one or different industrial sectors would reveal not only interesting insights in special features of each industrial sector but also differences between the industrial sectors. This is interesting as industrial sectors are defined by unique environments and restrictions. Hence, understanding the unique challenges of a sector can enhance future endeavors within this industry. For this, taking external, environmental factors into consideration will be necessary. Furthermore, conducting a study of a company which did not succeed in implementing and realizing its BoP endeavor can also reveal very interesting insights into structures that profoundly hinder such a project.

Additionally, these findings do not acknowledge the growing number of small, innovative enterprises that enter the field of BoP innovations. It is apparent that innovation processes within small-scale companies differ from those in MNCs. As this paper explicitly focuses on process within MNCs it does not contribute to the experiences and challenges faced by smaller endeavors.

As for future research studies, there some very interesting points of reference. The topic of frugal innovations is a growing research field that not only defines frugal innovations but also discusses the respective potential on low-income markets as well as on more advanced markets. Here, especially the question of how innovating in resource-constraint environments can influence an innovator’s mindset in a way to think more frugal and resourcefulness. This field of research is particularly interesting in times of resource scarcity.

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9. Conclusion This paper discussed enabling factors for innovation processes with the objective to identify relevant enabling factors for innovation processes in general and subsequently to visualize a BoP innovation processes with its unique characteristics. This chapter finally connects to this aim and summarizes the key findings.

As especially in literature a strong discussion about BoP markets and their future role in a global economy emerged, the question of whether or not to engage on these markets is vastly discussed. This paper, therefore, rather focuses on bridging the gap between the theoretical discussion of the business potential and the void of its practical implementation. Companies might have understood that engaging on BoP markets is essential to secure future competitiveness and growth but lack an understanding of how to start and implement a BoP project. Hence, this paper contributes to this gap by first applying a literature review which summarizes the scientific status-quo of influencing enabling factors for innovation processes which create an understanding of important factors that generically impact a company’s innovation endeavor. The empirical case studies then visualize innovation processes which specifically target BoP markets. The discussed challenges and differences to a generic innovation process emphasize the importance of adjusting internal structures and mindsets when innovating for a BoP market.

The first applied literature review revealed the seven enabling factors that influence a generic innovation process: customer orientation, rigorous planning & early specification, pre-development activities, formalized project selection, functional competence & cross-functional teams, strong project leader and top management support. The following analysis of the empirical case studies of GE Healthcare and G&B visualized the differences and challenges that accompany a BoP innovation process.

First, the focus on customer orientation was strengthened in a BoP innovation process as a company is unfamiliar with local consumers’ and market needs and, hence, an orientation with a strong focus on understanding of exactly these enhances an innovation’s adoption. Second, rigorous planning & early specification is not as important in Bop innovation processes as in a generic innovation process. Due to the novelty of the endeavor and the market, uncertainties and risks remain which make rigorous planning and an early specification of the project impossible. Third, pre-development activities remain important and decisive to a successful innovation. As mentioned before, companies are unfamiliar with the local needs and market structures, hence, thoroughly executed homework enhances the understanding and therefore also the appropriateness of the innovation. Fourth, formalized project selection is found to be one of the most important factors for BoP innovation processes. As companies usually established rather short-term evaluation criteria and profitability expectations, BoP projects fail internal assessments and comparisons. Hence, it is vital to define a BoP project as a long-term strategic investment which does not need to fulfill short-term profit expectations. Fifth, in terms of functional competence & cross-functional teams no difference in significance could be found. It is suggested that well-equipped cross-functional teams, as discussed in literature, are also decisive for BoP projects. However, internationality of the team was added with regards to BoP innovation processes. Sixth, especially the case study of GE Healthcare showed that a project champion for BoP projects is the most important factor, especially in the starting phase. Strong personal commitment is necessary for engaging lobbying for the project and nurturing it in the following. Lastly, top management support is decisive in terms of adjusting structural factors and strategic orientation as well as enabling more flexible work for the project. However, convincing the top management is potentially a long-lasting endeavor.

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Additionally, the strategic (re-)orientation of a company, an independent business unit as well as mindsets and work approach were discussed. It was argued that applying the healthymagination strategy, GE was able to manage structural division while maintaining corporate inclusion and alignment. The new strategic focus created the necessary room for flexibility and solving some of the challenges discussed in chapter 7. Furthermore, the analysis and discussion revealed that defining an independent business unit, i.e. a separate business unit that solely focuses on BoP projects or an independent local business unit with own responsibility of P&L, offers an opportunity to overcome some of the structural barriers discussed above. Here, GE Healthcare’s restructuring as a response to the newly defined BoP strategy is a good example of how a company can explore new markets while simultaneously exploiting established markets. Lastly, it was argued that the mindset and work approach has a significant but rather indirect impact on a BoP innovation process. If neither the top management, when applying a decentralized approach, nor the tasked employees, when applying a centralized approach, were convinced of the idea and applied a resourceful mindset, the project was more unlikely to take off at all. Additionally, due to the uncertainties and unfamiliarity of the endeavor, applying and tolerating a more intrapreneurial work approach, i.e. more flexible and open-minded, is a possibility to cope with the insecurities.

Engaging on BoP markets, in conclusion, includes a wide range of challenges for companies. In short, the seven enabling factors that were found in literature could not be proven unimportant or irrelevant. The case studies rather showed that the weight of some factors differs for a BoP innovation process. Furthermore, three additional factors were found to be decisive in BoP innovation processes. This paper’s visualization emphasizes the importance of being open and flexible in terms of internal structures, processes and requirements towards adjustments. This applies not only for conventional criteria that do not account for a BoP project’s novelty and risks as well as for mindsets and personal commitment that are essential to nurture such an uncertain endeavor.

The strong call for sustainability asks corporations to include the so-far underserved population into their strategic orientation and considerations for ending some of the most pressing issues of our times. “By taking the great leap to the base of the pyramid, (…) (companies, editor’s note) will be giving themselves a chance for sustained corporate growth while also helping to lift the poor out of poverty and opening the way to sustainable growth for the global economy” (Christensen & Hart 2002; 56). If done properly, the mutual collaboration can establish benefits for both sides, i.e. strengthening a company’s competitiveness for a resource-scarce future and bringing affordable and adequate innovative solutions to pressing issues in low-income countries. Hence, engaging on BoP markets can strongly contribute to a global sustainable development.

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Acknowledgements This thesis would not have been possible if there was not inspiring people who reliably provided their skillful supervision and support during this journey.

I thank Dr. Aline Krämer from Endeva for the great collaboration and support. Her inspiring work at Endeva not only initiated this research project but her assistance and expert input also improved this thesis considerably.

I express my deepest gratitude for my supervisor Cecilia Mark-Herbert and for her passionate and skillful supervision. Not only provided her academic knowledge important insights but also her encouragement and constructive feedback enabled me to improve considerably as an academic. I also thank my evaluator Karin Hakelius for her comments and my fellow students for a supportive study environment and constructive feedback sessions.

Special thanks to my two interviewees, Aditi Ramdorai and Ankur Singh, for their time and agreement to participate in this project. Without their inputs and insights this thesis would not have been possible.

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I

Appendix: Interview guideline The following questions were used as a guideline for the conducted interviews of this research paper. In the course of the interviews, questions were adjusted and questions for clarifications were added.

Introductory questions:

Since when is (company’s name) engaged on a BoP market? Please outline shortly the project.

Which motives led to this decision? Who initiated the project?

Who nurtured the project in the beginning?

The beginning of BoP project:

Centralized approach Decentralized approach

What was the aim the top management pursued? (feasibility study vs concrete development project)

What was the aim the innovation team/champion pursued? (feasibility study vs concrete development project)

Which specifications did the top management enact for the project? Did they differ to specifications for more mainstream projects? (evaluation criteria, resource allocation)

What was required for convincing the top management? Was the project assessed differently compared to more mainstream projects? (evaluation criteria, resource allocation)

How did the tasked employees react to the project?

How did the inaugurated colleagues react to the project?

What internal obstacles were faced at this early stage?

What internal obstacles were faced at this early stage?

Execution of BoP project:

How was the innovation team composed? Who allocated how many resources?

Which factors influenced the collaboration within the company? (positively/negatively)

What pre-development activities were conducted?

How did the planning phase and possibilities differ to a more mainstream project?

Which criteria were applied for assessing the project?

What role did top management/project leader play in the course of the project?

Was there a factor that you perceive as strongly important for a BoP innovation process?

Experiences and learning outcomes:

Have the made experiences resulted in internal, organizational changes or adjustments? If so, which kind?

If you had to go through the entire process again with the knowledge and experience you have now what would you change (structure) and do differently (process)?